U.S. Department of Labor Issues Final Rule To Amend Tipped Employee Regulations

WASHINGTON, DC – The U.S. Department of Labor today announced a final rule protecting the tips of employees. This rule addresses amendments made to Section 3(m) of the Fair Labor Standards Act (FLSA) by the Consolidated Appropriations Act (CAA) of 2018. The CAA prohibits employers from keeping tips received by their employees, regardless of whether the employer takes a credit for tips earned by workers toward its minimum wage obligation to those employees under the FLSA (a “tip credit”). The rule also prohibits employers from allowing managers or supervisors to keep any portion of employees’ tips.

“This final rule provides clarity and flexibility for employers and could increase pay for back-of-the house workers, like cooks and dishwashers, who have been excluded from participating in tip pools in the past,” said Wage and Hour Administrator Cheryl Stanton. “Newly allowed tip sharing may incentivize the inclusion of these previously excluded workers and reduce wage disparities among all workers who contribute to customers’ experience.”

Clarity on this issue benefits employers and workers throughout food service industries. The final rule also largely codifies the Department’s guidance regarding an employer’s ability to claim the tip credit when workers perform both tipped and non-tipped duties, clarifying when employers can continue to claim the tip credit while the employee performs duties that do not generate tips. The guidance clarifies which non-tipped duties are considered related to a tip-producing occupation.

The CAA did not affect longstanding regulations that apply to employers that take a tip credit under the FLSA. For example, employers that claim a tip credit must ensure that a mandatory “traditional” tip pool includes only workers who customarily and regularly receive tips, meaning that employees such as cooks or dishwashers remain excluded. However, the CAA removed the regulatory restrictions on an employer’s ability to require tip pooling when it does not take a tip credit and instead pays tipped employees the full minimum wage in direct wages. Those employers may now implement mandatory, “nontraditional” tip pools, which may include employees such as cooks and dishwashers.

The final rule is effective 60 days after its publication in the Federal Register. 

WHD’s mission is to promote and achieve compliance with labor standards to protect and enhance the welfare of the Nation's workforce. WHD enforces federal minimum wage, overtime pay, recordkeeping and child labor requirements of the FLSA. WHD also enforces the paid sick leave and expanded family and medical leave requirements of the Families First Coronavirus Response Act, the Migrant and Seasonal Agricultural Worker Protection Act, the Employee Polygraph Protection Act, the Family and Medical Leave Act, wage garnishment provisions of the Consumer Credit Protection Act and a number of employment standards and worker protections as provided in several immigration-related statutes. Additionally, WHD administers and enforces the prevailing wage requirements of the Davis Bacon Act and the Service Contract Act and other statutes applicable to federal contracts for construction and for the provision of goods and services.

The mission of the Department of Labor is to foster, promote and develop the welfare of the wage earners, job seekers and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights.