On December 22, 2020, the U.S. Department of Labor (DOL) announced a final rule to amend employee tip regulations under the Fair Labor Standards Act (FLSA). The final rule will become effective 60 days after its publication in the Federal Register (March 1, 2021).
The FLSA allows employers to collect all the tips employees receive into a common employee tip pool, then redistribute these tips among employees in an equitable manner.
This new final rule prohibits employers from keeping their employees’ tips and specifically prohibits managers and supervisors from keeping any portion of employee tips, including tips from a tip pool. In addition, the rule limits an employer’s ability to implement mandatory tip pools that include non-tipped employees and incorporates a new recordkeeping requirement for employers that do not take a tip credit but collect employees’ tips to operate a mandatory tip pool. Finally, the new rule also incorporates new civil monetary penalties, codifies recent DOL guidance on how to compensate a tipped employee who performs non-tipped duties at work and harmonizes FLSA requirements with Executive Order 13658 (Establishing a Minimum Wage for Contractors).
Next Steps for Employers
Employers with tipped employees should become familiar with these new regulations to ensure that their tip pool arrangements meet the requirements of the final rule. Employers may obtain more information about the rule on the US DOL’s final rule webpage.