Department of Labor Proposes New Tip Regulations

The U.S. Department of Labor announced a proposed rule which would allow employers who do not take a tip credit to establish a tip pool to be shared between workers who receive tips and are paid the full minimum wage and employees that do not traditionally receive tips, such as dishwashers and cooks. Although this proposed rule would change tip pooling rules in many states, in New York it is still unlawful for a tip pool to include back of the house workers or managers.

The proposed Department of Labor rule would not impact regulations providing that employers who take a tip credit may only have a tip pool among traditionally tipped employees. An employer may take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (currently $2.13 per hour) and the federal minimum wage. Establishments utilizing a tip credit may only have a tip pool among traditionally tipped employees.

Additionally, the proposed rule reflects the Department of Labor’s guidance that an employer may take a tip credit for any amount of time an employee in a tipped occupation performs related non-tipped duties with tipped duties. For the employer to use the tip credit, the employee must perform non-tipped duties contemporaneous with, or within a reasonable time immediately before or after, performing the tipped duties. The proposed regulation also addresses which non-tipped duties are related to a tip-producing occupation.

In its Notice of Proposed Rulemaking, the Department of Labor proposes to:

• Explicitly prohibit employers, managers, and supervisors from keeping tips received by employees;

• Remove regulatory language imposing restrictions on an employer’s use of tips when the employer does not take a tip credit. This would allow employers that do not take an FLSA tip credit to include a broader group of workers, such as cooks or dishwashers, in a mandatory tip pool.

• Amend the regulations to reflect recent Department of Labor guidance explaining that an employer may take a tip credit for any amount of time that an employee in a tipped occupation performs related non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing the tipped duties.

The new proposed regulations have national implications but note that in New York State, employers are strictly forbidden from splitting tips with non-service employees.

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