DOL proposes changes to rules on tipped employee pay

Today (December 5), the U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking regarding the tipped employee regulations under the Fair Labor Standards Act. The proposed rule follows several years of litigation arising out of a 2011 DOL regulation. 

As explained in a Wage and Hour Watch blog from September 2017, the DOL’s 2011 rule made tips the  sole property of the employee who received the tips and prohibited tip-sharing with customarily non-tipped employees such as cooks and dishwashers. This applied even if the employee who received the tip was not paid on a tip credit basis and instead was paid the full minimum wage. (The tip credit regulations permit an employer to offset a portion of the minimum wage by the tips received by the employee).

The 2011 Rule has been challenged several times, and the federal circuit courts of appeal are split on whether or not the DOL overstepped its authority in the rule. The Supreme Court may speak to this and resolve the discrepancies, as it is considering whether to grant certiorari and hear a case on the validity of the 2011 Rule (National Restaurant Association et al v. Perez). 

The newly proposed regulation would rescind the 2011 Rule, and allow employers who pay full minimum wage, without taking the tip credit, to retain and use employee-received tips for purposes such as pooling tips and sharing with non-tipped employees. The proposed rule also specifies that employers who take advantage of the tip credit and apply it to meet minimum wage requirements may not retain employee tips or include non-tipped employees in a tip-sharing pool. 

The 30-day comment period for this proposed rule closes on January 4, 2017, which is a very short comment period. Whether or not you decide to comment, if you are a business that utilizes tipped employees, it is worth your while to keep abreast of the rules and review your tip policies to ensure they comply with the FLSA and regulations currently in place (as interpreted in your jurisdiction). DOL’s Wage and Hour Division routinely investigates business with tipped employees, and tipped employee class-action lawsuits continue to proliferate.

For questions regarding Department of Labor rules contact Dickinson's Employment Law Section at 515-244-2600. 

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed. 

- Mike Staebell