As promised in our April 2021 post regarding the rules for tipped employees, here’s the update on the final rule. Recall that not all of the rule became effective earlier this year but certain portions were implemented to help workers increase earnings during the pandemic. For example, the April 2021 rule allowed employers who did not take a tip credit to allow dishwashers, cooks, chefs, custodians and other non-tipped employees to participate in the tip pool. For a refresher on the details of what actually became final in April 2021, click here.

Now that other portions of the tipped employee rule are finally final, they go into effect November 23, 2021. Here’s what you need to know:

• Notably, the rule restores the U.S. Department of Labor’s ability to assess civil money penalties (CMP) of up to $1,100 per violation against employers. CMPs may be assessed any time an employer unlawfully takes tips earned by their employees, regardless of whether the violation is willful.

• Employers may use the tip credit for minimum wage when there is no traditional tip pool, only if the tipped employee retains all the tips he or she receives and those tips are sufficient to make up the difference between cash wages paid and the current federal minimum wage, which is $7.25 per hour.
• If you use a tip pool and claim credit, the tip pool must include only those traditionally eligible employees and not back-of-the-house employees, such as dishwashers and custodians. However, like we said in April, if you do not take a credit, you may have “non-traditional” tip pools that include back-of-the-house employees. Consult your employment attorney on advice as to whether you should take a tip credit or not.
• Regardless of the credit, managers and supervisors should not collect tips from an employer-mandated tip pool but may be required to contribute tips to the pool. If the manager or supervisor receives tips for services that he or she “directly and solely” provides, the manager or supervisor may retain those tips, but you may also require them to contribute (but not receive) a portion to the tip pool.

What Does This Mean?

Whatever you do, make every effort to understand and comply with the FLSA tipped employee rules.  Then, update your policies, train your supervisors and managers, and be sure to consider state and local laws. As always, reach out to your employment attorneys with any questions and for assistance with figuring out the best approach for your business.