Department of Labor Issues Final Rule on Tip Pooling Under the FLSA

The U.S. Department of Labor issued a final rule clarifying tip credit issues under the Fair Labor Standards Act (FLSA).  The rule provide that an employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit. It also permits employers that did not take the tip credit to require employees to share tips with back-of-the-house employees or other non-managers through a mandatory tip pool.  Under the Department of Labor’s final rule, employers are permitted to compel tipped employees who are paid at least minimum wage (and thus no tip credit is taken) to share tips with non-tipped employees such as cooks and dishwashers, as long as the tips are not shared with supervisors, managers, or the owner of the restaurant.

“This final rule provides clarity and flexibility for employers and could increase pay for back-of-the house workers, like cooks and dishwashers, who have been excluded from participating in tip pools in the past,” said Department of Labor spokesperson Cheryl Stanton. “Newly allowed tip sharing may incentivize the inclusion of these previously excluded workers and reduce wage disparities among all workers who contribute to customers’ experience.”

The Department of Labor’s Final Rule did not affect longstanding regulations that apply to employers that take a tip credit under the FLSA. For example, employers that claim a tip credit must ensure that a mandatory “traditional” tip pool includes only workers who customarily and regularly receive tips, meaning that employees such as cooks or dishwashers remain excluded. However, the Department of Labor has removed the regulatory restrictions on an employer’s ability to require tip pooling when it does not take a tip credit and instead pays tipped employees the full minimum wage in direct wages. Those employers may now implement mandatory, “nontraditional” tip pools, which may include employees such as cooks and dishwashers.

Important note: many states have their own rules that place restrictions on who can participate in a tip pool. In New York, for example, the New York Labor Law strictly prohibits restaurants from permitting cooks and dishwashers to participate in a tip pool.

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