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DOL Proposes Changes to 2011 Rule to Allow Non-Tipped Workers to Share Tips

Leah Kessler

On Tuesday, December 5, the Department of Labor (DOL) sent out a Notice of Proposed Rule Making (NPRM) regarding tip regulations under the Fair Labor Standards Act (FLSA). The DOL seeks to rescind an Obama-era regulation that prohibited restaurants and other service-industry employers, specifically those who pay their employees minimum wage and do not take a tip credit, from enforcing a tip-sharing system between tipped and non-tipped employees.

While tips are considered the sole property of the tipped employee under the FLSA, tip-pooling (sharing tips equally among staff) is allowed. There are, however, specific requirements for valid tip-pooling arrangements. When an employer takes a tip credit to satisfy a portion of the minimum wage, the tip pool can only include workers who “customarily and regularly receive tips”, prohibiting the sharing of tips with “back of the house” employees (such as cooks and dishwashers), who do not usually earn tips. Section §203(m) of the FLSA outlines the rules and regulations for tip credits, permitting employers to take a tip credit toward the minimum wage obligation for tipped employees equal to the difference between the required cash wage and the minimum wage. For example, the federal minimum wage is currently set at $7.25 per hour. Under section § 203(m) of the FLSA, an employer can pay his or her tipped employee a minimum cash wage of $2.13 per hour and claim a maximum credit of $5.12 per hour. The employer is obligated to pay the employee if the tips do not amount to the mandatory feral minimum wage. (These are the federal rules for tip credits. Fortunately, the tip credit regulations in New York are better for employees: The minimum cash wage is higher and the maximum tip credit allowed is lower.)

The Obama-era rule was controversial because it extended these requirements, which before affected only those employers who took a tip credit, to also include employers who pay their employees the required hourly minimum wage without taking a tip credit. This rule spawned a number of lawsuits, as the language of the FLSA does not impose restrictions on employers unless tip credit is taken. In Oregon Restaurant and Lodging Association v. Perez, a divided Ninth Circuit reversed a federal district court’s order invalidating the rule, with the majority reasoning that the FLSA’s “clear silence as to employers who do not take a tip credit has left room for the DOL to promulgate the 2011 rule.” In Marlow v. The New Food Guy, Inc., the Tenth Circuit held that the DOL overstepped its authority in 2011 by categorically prohibiting employers from retaining tips regardless of whether they take the tip credit.

Proponents of rescinding the rule, believe it will reduce inequality between staff at service-industries by improving the wages of the non-tipped employees, who also contribute to the service and customer experience. Opponents, on the other hand, think that this proposed change will give too much power to the employer and make it even harder for workers to reap the rewards of their labor. There is a 30-day comment period for this rule; comments may be submitted at: This period ends on January 4, 2018.

If your employer has violated your rights under wage-and-hour laws, including failing to fairly compensate you for all hours worked, contact The Harman Firm, LLP.



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