Oh tip, now what?

On March 23, 2018, Congress amended the Fair Labor Standards Act (“FLSA”) by, among other things, adding the following provision to the Consolidated Appropriations Act of 2018:

“An employer may not keep tips received by its employees for any purpose, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.”

What does this mean? In a separate release, the Department of Labor (“DOL”) explained that the new provision allows workers in the back of the house (e.g., cooks, bussers, dishwashers) to participate in tip pools in appropriate circumstances and that employers themselves cannot keep tips.

Does this impact your company? Employers who pay the full FLSA minimum wage may allow employees who are not customarily and regularly tipped to participate in tip pools. However, the amendment does not impact enforcement by the Wage and Hour Division (“WHD”) when an employer claims a tip credit.

What about conflicting regulations? As part of the amendment, portions of the WHD’s current regulations will not be enforced until future action by the WHD Administrator. As stated in its April 6, 2018, Field Assistance Bulletin, the WHD expects to proceed with rulemaking in the near future to fully address the impact of the amendments. Stay tuned.

Who can participate in the tip pool? Managers and supervisors are prohibited from participating in tip pools because such participation would equate to the employer keeping tips. The WHD will use the duties test of the FLSA to determine whether an employee is a manager or supervisor for these purposes. Under the test, an employee will be considered a manager or supervisor if he or she:

  • Has a primary duty of management of the business or a recognized department or subdivision of the business;
  • Customarily and regularly directs the work of two or more employees; and
  • Has the authority to hire or fire other employees or the power to affect the employment status of other employees through suggestion or recommendation.

What if my company violates these new provisions? Penalties for violations have been increased and the amendment now provides the WHD with discretion to impose civil money penalties.

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