Coaching & Consulting For Hospitality Businesses: +1-855-744-4677

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

On December 22, 2020, the Department of Labor announced a final rule revising its tipped employee regulations to address amendments made to section 3(m) of the Fair Labor Standards Act (FLSA) by the Consolidated Appropriations Act of 2018 (CAA). That amendment prohibits employers from keeping tips received by their employees, regardless of whether the employer takes a tip credit. It also prohibits employers from allowing managers or supervisors to keep any portion of employee’s tips. In addition, the final rule codifies the Department’s guidance regarding the tip credit—how that credit applies to employees who perform tipped and non-tipped duties and which non-tipped duties are 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. This means, for example, that employees such as cooks or dishwashers cannot be part of such a tip pool. However, the CAA removed the regulatory restrictions on an employer’s ability to require tip pooling when it does not take a tip credit; those employers may now implement mandatory, “nontraditional” tip pools, which may include employees such as cooks and dishwashers.

In this final rule, the Department:

  • removes the portions of the regulations that prohibited employers that do not take a tip credit from implementing mandatory “nontraditional” tip pools—that is, tip pools that include employees who do not customarily and regularly receive tips;
  • explicitly prohibits employers—regardless of whether they take a tip credit—from keeping employees’ tips for any purpose, which includes prohibiting managers and supervisors from keeping tips received by employees;
  • amends its regulations to state that an employer that collects tips to facilitate a mandatory tip pool must fully redistribute the tips no less often than when it pays wages to avoid “keep[ing]” the tips in violation of section 3(m)(2)(B);
  • incorporates the CAA’s new requirements regarding civil money penalties (CMP) into its regulations and revises additional portions of its CMP regulations to address courts decisions that have raised concerns;
  • incorporates a new recordkeeping requirement for employers that do not take a tip credit but collect employees’ tips to operate a mandatory tip pool;
  • codifies recent guidance explaining that an employer may take a tip credit for time that an employee in a tipped occupation performs related non-tipped duties either contemporaneously with or for a reasonable time immediately before or after performing tipped duties; the final rule also states that, in addition to the examples listed in the regulation, a non-tipped duty is presumed to be related to a tip-producing occupation if it is listed as a task of the tip-producing occupation in O*NET;
  • amends the regulations that address the payment of tipped employees under Executive Order 13658 (Establishing a Minimum Wage for Contractors) to reflect the corresponding changes in the FLSA regulations and to otherwise align those regulations with the Executive Order.

Disclaimer: This final rule has been submitted to the Office of the Federal Register (OFR) for publication, and is currently pending placement on public inspection at the OFR and publication in the Federal Register. This version of the final rule may vary slightly from the published document if minor technical or formatting changes are made during the OFR review process. Only the version published in the Federal Register is the official final rule.

Additional Information

Jeffrey Summers
For four decades, my coaching, consulting, public speaking, workshops, management team retreats and articles have helped thousands of hospitality leaders worldwide, build successful businesses. The Summers Hospitality Group is a global full-service hospitality consulting firm best known for its unique results-driven, strengths-based system for developing extraordinary leaders and demonstrating the performance impact they have on their organizations.

Share This

Copy Link to Clipboard

Copy