Proposed Department of Labor Rule Revising Tip Pooling Rules

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By Robert J. Hingula and Latrice Nicole Lee 

On December 4, 2017, the Department of Labor (“DOL”) proposed a rule that will rescind the 2011 regulation prohibiting restaurants, bars, and other service industry employers from requiring front-of-house employees, such as servers, to share tips with back-of-house workers, such as cooks and dishwashers. 

The current rule does not require tipped employees to share their tips with non-tipped employees; however, the proposed rule, which was first announced in July, will allow employers to require tipped employees to split tips with their co-workers. “The proposal would help decrease wage disparities between tipped and non-tipped workers,” the DOL said in a statement Monday. 

Under the Fair Labor Standards Act (FLSA), the federal law which governs minimum wage and overtime, employers may take what is called a “tip credit,” meaning they can pay tipped employees less than the minimum wage (the federal tipped minimum wage $2.13 however some states require more) so long as the tips earned by a given employee will increase their wage rate to at least $7.25 an hour (or the state minimum wage, if higher).  Under the DOL’s new rule, employers may choose to not take a tip credit by paying all employees minimum wage. If an employer pays everyone minimum wage, the employer could decide how to split tips received from customers as the tips would no longer be the property of the employee. 

The proposed rule only applies to employers who pay tipped employees at least the federal minimum wage of $7.25 an hour (or the state minimum wage, if higher than the federal minimum wage) and allow compensation sharing through a “tip pool” with employees who usually do not receive tips, such as cooks and dishwashers.

The DOL will accept public comments on the proposed regulation for 30 days (until January 4, 2018). 

If you have questions about how the proposed rule will affect your business, contact the Labor and Employment attorneys at Polsinelli.