DOL New Regulations: Tip Pools

Howard K. KurmanPrincipal, Offit│Kurman

As discussed in the previous blog, the Department of Labor issued regulations that clarify the 2018 amendments to the Fair Labor Standards Act (FLSA). This is the second of a four-part series on these new regulations. This blog focuses on the amendments relating to Tip Pooling.

PROHIBITION ON EMPLOYERS KEEPING TIPS

As discussed in the last post, the FLSA expressly prohibits all employers from keeping tips from employees. It is a violation of the FLSA when the employer allows managers and supervisors to keep tips earned by employees.

The Regulations guide employer and elaborate on what it means exactly to “keep tips.” The amended regulations explain that employers are permitted to require employees to share tips with other eligible employees to receive tips.

When an employer facilitates a “Tip Pool” (collecting employee tips and redistributing them), the employer must fully and promptly distribute the tips. This means the employer must either:

  • fully distribute any tips collected no later than the regular payday for the workweek in which the tips were collected;
  • in the event, the pay period covers more than a single workweek, the regular payday for the period in which the workweek ends; or
  • if it is impossible to pay on the payday, the tips must be distributed as soon as practicable, after the regular payday.
TRADITIONAL MANDATORY TIP POOLS: Employers That Take a Tip Credit

The regulations clarity the requirements for Mandatory Tip Pools for employers who take the tip credit. (NOTE: See the previous blog for a definition of a tip credit.) When an employer takes the Tip Credit, the employer may:

  • Require the employees participate in a mandatory tip pool,
  • the Tip Pool may only be comprised of employees who customarily and regularly receive tips; and
  • the employer must notify its employees of the required tip pool contribution amount.

It is important to remember that the employer can only take the tip credit for the number of tips each employee actually receives. In other words, if after the distribution of the tips, the employees still do not make the minimum wage, then the employer can only take the tip credit for the number of tips earned by the employees.

Lastly, and perhaps most important, employers who take a tip credit and have mandatory tip pools cannot allow supervisors and managers to participate in the Tip Pool.

NON-TRADITIONAL MANDATORY TIP POOLS: Employers That Do Not Take a Tip Credit

When an employer does not take a Tip Credit, meaning it pays employees the full minimum wage, then it may impose a Mandatory Tip Pool that includes employees who do not “customarily and regularly receive tips.” This means that the tip pool could include dishwashers, cooks, or other employees in the establishment. NOTE: Supervisors and managers cannot participate in this Tip Pool.

Prudent employers with tipped employees will revisit their handbooks to ensure that their wage/payment policies are compliant with these new regulations. Employers may also want to change their wage/payment policy in light of these changes. These new regulations go into effect on March 1, 2021.

ABOUT SUSIE CIRILLI

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Susie M. Cirilli is a Labor & Employment attorney that assists clients with issues involving the ADA, FMLA, and Title VII claims. Susie litigates on matters related to hostile work environment, discrimination based on sex, sexual orientation, pregnancy, race and disability. Susie has experience representing employers in fact-finding conferences and mediations before the PHRC and the EEOC. Susie’s practice also consists of counseling and advising clients on employment matters. She often advises employers on day to day employment matters and assists her clients on employee issues such as hiring and terminations, which includes drafting and negotiating separation agreements. Susie has experience drafting and revising employment agreements, employee handbooks, non-compete and non-solicitation agreements. Susie is admitted in the Middle District and Eastern District of Pennsylvania. She is also admitted in the Federal Court for the District of New Jersey.