The recently passed Consolidated Appropriations Act (“CAA”) put an end to an ongoing controversy over the status of a proposed Department of Labor (“DOL”) tip rule and the underlying dispute over whether employers who do not claim the tip credit against the federal minimum wage may be prohibited from including non-tipped employees in mandatory tip pools. In 2017, the DOL moved to roll back an Obama-era regulation extending this restriction to employers that pay their tipped employees the full minimum wage.

Following the passage of the CAA, the DOL issued a Fact Sheet and Field Assistance Bulletin that outline the changes to Fair Labor Standards Act (“FLSA”) tipping rules. See U.S. Department of Labor, Wage and Hour Division, Fact Sheet #15, revised April 2018; U.S. Department of Labor, Wage and Hour Division, FAB No. 2018-3, April 6, 2018.  The CAA amended the FLSA to vacate the DOL’s 2011 regulations that barred tip pooling when employers do not claim a tip credit under the FLSA.  Additionally, the CAA’s changes provide that an employer may not keep employees’ tips for any purpose, regardless of whether it takes a tip credit.  A tip is the sole property of the tipped employee, so even if a tipped employee receives at least $7.25 per hour in wages from the employer, the employee may not be required to turn over his or her tips to the employer. 

This requirement does not preclude a valid tip pooling arrangement among employees who customarily and regularly receive tips.  Employers that pay tipped employees at least minimum wage can now include back of house workers, such as cooks and dishwashers, along with front of house workers, such as servers, in a tip pool.  The CAA does prohibit managers and supervisors from participating in the tip pool.  The employer must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each tipped employee ultimately receives, and may not retain any of the employees’ tips for any other purpose.

The DOL will begin using new enforcement tools to recover tips unlawfully kept by employers, such as by recovering tips in addition to an equal amount of liquidated damages and civil and monetary penalties as appropriate.  The changes to FLSA tipping rules will be enforced by the DOL in new investigations on or before March 23, 2018.  Employers should review their tip policies to ensure they are in compliance with any changes that apply.