Department of Labor Announces Notice of Proposed Rulemaking to Expand Tip Pooling Practices for Employers

Nexsen Pruet, PLLC

Nexsen Pruet, PLLC

Last week, our firm hosted a webinar on recent developments in federal wage and hour law compliance as part of Nexsen Pruet’s Employment Law Certificate Series. The topic proved to be very timely as the U.S. Department of Labor (DOL) has been busy over the past few weeks.

Last month, the DOL announced its final rule concerning salary threshold changes for “white collar” overtime exemptions under the Fair Labor Standards Act (FLSA). The final rule increases the salary threshold needed to qualify for the administrative, executive and professional exemptions under the FLSA from $23,660 annually, or $455 per week, to $35,568 annually, or $684 per week. The final rule also raises the compensation level for the “highly compensated employees” exemption from $100,000 to $107,432. These changes will take effect on January 1, 2020.

And, last week, the DOL announced a Notice of Proposed Rulemaking that will rescind regulations restricting an employer’s use of tip pooling, even when the employees are paid a direct cash wage of at least the full federal minimum wage and the employer does not claim a tip credit. Under the proposal, employers will be able to distribute customer tips to non-tipped employees, such as dishwashers and cooks, so long as the employer is not claiming a tip credit.

By way of background, in 2018 Congress passed the Consolidated Appropriations Act of 2018 (CAA). This amended the FLSA by adding language to specifically ban employers, managers, and supervisors from collecting any portion of an employee’s tips, regardless of whether the employer claimed a tip credit. The CAA also rolled back 2011 regulations that prohibited employers from including non-tipped employees in a tip pool, even when the employer is not claiming a credit. Soon after, the DOL’s Wage and Hour Division issued guidance allowing employers to establish tip-sharing agreements between “front of the house” and “back of the house” employees when the employees are paid a full minimum wage.

The Notice of Proposed Rulemaking announced last week – and available for review and public comment for 60 days – will codify the DOL’s prior guidance into a rule by proposing the following:

  • Expressly prohibiting employers, managers, and supervisors from keeping tips received by employees;
  • Removing regulatory language imposing restrictions on an employer’s use of tips when the employer does not take a tip credit; and
  • Allowing new civil money penalties, currently not to exceed $1,100, to be imposed when employers unlawfully keep tips.

The notice also proposes regulations to reflect recent guidance that an employer may take a tip credit for any amount of time an employee in a tipped job performs related non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing those duties.

In addition to allowing employers to distribute customer tips to larger pools of employees, the proposed rule will likely incentivize workers to provide good customer service in order to increase their earnings. Furthermore, the DOL expects that the new rule will allow for a reduction in wage disparities among all employees in the establishment who contribute to the overall customer experience.

The proposed rule does not impact existing regulations providing that employers who claim a tip credit may only utilize tip pools comprised of employees who customarily and regularly receive tips.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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