Last week, the U.S. Department of Labor’s Wage and Hour Division issued final regulations implementing 2018 amendments to provisions of the Fair Labor Standards Act that deal with compensation of tipped employees. For certain employees, employers can pay a subminimum wage and use a portion of the employee’s tips to make up the difference between this rate and the standard $7.25 minimum. (This approach is called the “tip credit.”) The 2018 legislation made clear that employers cannot keep any portion of employees’ tips, whether they claim the tip credit or not.

The final DOL rule addresses two portions of this prohibition. First, employers can require managers and supervisors to pool a portion of their tips for distribution to employees who are eligible for tip sharing, although those managers may not receive the proceeds of the pool. Second, managers and supervisors may keep tips that are generated “directly and solely” through their own efforts.

In addition to these changes, the final rule allows DOL to assess civil monetary penalties against employers that violate tip rules, even if DOL does not allege a willful or repeat violation. The final rule takes effect in late November.

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