The FLSA permits an employer to take a tip credit toward its minimum wage and overtime obligation(s) for tipped employees per Section 3(m)(2)(A). An employer that claims a tip credit must ensure that the employee receives enough tips from customers, and direct (or cash) wages per workweek to equal at least the minimum wage and overtime compensation required under the FLSA.

Current Tips Regulations

The Department’s regulations regarding tipped employees under the Fair Labor Standards Act (FLSA) are provided in the Code of Federal Regulations (CFR) at Title 29 Part 531, Subpart D - Tipped Employees (§ 531.50 et seq.). Records to be kept by employers for tipped employees are discussed in 29 CFR § 516.28. Among other topics, the regulations address:

  • The conditions for an employer to claim a “tip credit” against its minimum wage obligation for a tipped employee (29 CFR 531.51);
  • General restrictions on an employer’s use of its employees’ tips (29 CFR 531.52);
  • Payments which constitute tips (29 CFR 531.53) and examples of payments which do not constitute tips (29 CFR 531.55);
  • Tip pooling (29 CFR 531.54);
  • The treatment of employees engaged in “dual jobs” which consist of a tipped occupation and a non-tipped occupation (29 CFR 531.56(e)); and
  • Calculating overtime pay for tipped employees (29 CFR 531.60).

Regulatory History 2020-2024

In 2020 and 2021, the Department completed a series of rulemakings to update its regulations addressing tipped employees, prompted in part by the 2018 legislative amendments to the FLSA which expressly prohibited employers, including managers and supervisors, from keeping employees’ tips. For context, four of these rulemakings are briefly summarized below.

  1. The Department published a final rule, “Tip Regulations Under the Fair Labor Standards Act (FLSA)” (2020 Tip Rule), on December 30, 2020 (See 85 FR 86756). The parts of this rule which became effective on April 30, 2021, provide:
    • an employer cannot keep employees’ tips under any circumstances; managers and supervisors also may not keep tips received by employees, including through tip pools;
    • an employer that pays the full minimum wage and takes no tip credit may allow employees who are not tipped employees (for example, cooks and dishwashers) to participate in the tip pool;
    • an employer that collects tips to facilitate a mandatory tip pool generally must fully redistribute the tips within the pay period; and,
    • employers that do not take a tip credit but collect employees’ tips to operate a mandatory tip pool, must maintain and preserve payroll or other records containing information on each employee who receive tips, and the weekly or monthly amount reported by the employee, to the employer, of tips received.
  2. The Department issued a final rule on September 24, 2021 (see 86 FR 52973) (2021 Civil Money Penalty (CMP) Rule), which withdrew and modified two portions of the 2020 Tip Rule related to the assessment of CMPs. The 2021 CMP Rule also modified provisions of the 2020 Tip final rule addressing managers and supervisors. Under the 2021 CMP Rule, which became effective on November 23, 2021, the Department:
    • restored its ability to assess CMPs against employers who violate the FLSA by taking tips earned by their employees, regardless of whether those violations are repeated or willful;
    • adopted the same rules, procedures, and amount considerations for CMPs for keeping tips as it applies to other FLSA CMPs;
    • addressed when minimum wage or overtime violations of the FLSA are considered “willful” and thus subject to a CMP assessment;
    • clarified that while managers or supervisors may not receive tips from tip pools, managers and supervisors are not prohibited from contributing to mandatory tip pools; and,
    • clarified that managers and supervisors may only keep tips that they receive from customers directly for services that the manager or supervisor directly and “solely” provides.
  3. On October 29, 2021, the Department issued the 2021 Dual Jobs Rule, which withdrew portions of the 2020 Tip final rule that would have amended the Department’s longstanding dual jobs regulation at 29 CFR 531.56(e). Separately, the 2021 Dual Jobs Rule adopted a different revision to that dual job's regulation, which took effect on December 28, 2021. (See 86 FR 60114). However, on October 29, 2024, a federal court vacated the revision, with the effect of reinstating the Department’s original dual jobs regulation. See Restaurant Law Center v. U.S. Department of Labor, 115 F.4th 396 (5th Cir. 2024), superseded on reh’g 120 F.4th 163 (5th Cir. Oct. 29, 2024).
  4. On December 16, 2024, the Department announced a technical rule to restore the original dual jobs regulation at 29 CFR 531.56(e).