In September and October 2021, the U.S. Department of Labor (DOL) announced the publication of two final rules that change and clarify how employers may treat and account for compensation received by tipped employees.
Tip Pooling and the Role of Managers and Supervisors
On September 24, 2021, the DOL announced a final rule regarding tip regulations under the Fair Labor Standards Act (FLSA) that address the limits on tip pooling and when and how managers and supervisors may receive and keep employee tips. The rule is effective November 23, 2021.
In 2018, Congress passed the Consolidated Appropriations Act (CAA), which expressly prohibited employers from keeping their employees’ tips “for any purposes, including allowing managers and supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.”
The new final rule acknowledges some circumstances where managers and supervisors may receive tips directly in a manner that does not violate the CAA’s prohibition against keeping employee tips. Specifically, the rule provides that:
- While supervisors and managers may not receive tips from mandatory tip pools or tip-sharing arrangements, they may contribute tips to eligible employees in mandatory tip pools or sharing arrangements.
- A supervisor or manager may only keep tips based on a service the supervisor or manager directly and “solely” provides.
Accordingly, under the new final rule, employers may allow a manager or supervisor to keep tips for services they directly provide to customers and may also require them to share a portion of those tips with other eligible employees.
For purposes of the final rule, a “manager” or “supervisor” is an employee:
- Whose primary duty is the management of the establishment where they are employed.
- Who regularly and customarily directs the work of two or more other employees.
- With the power to hire or fire other employees or whose recommendations and suggestions for hiring, firing, advancement, and promotion are given particular weight by their employer.
Tip Credits and “Dual Jobs”
The other new final rule, announced October 28, 2021, addresses limits on when an employer can take a tip credit for the time a tipped employee spends performing non-tip-producing work. The rule becomes effective December 28, 2021.
Under the FLSA, covered employers must pay non-exempt employees a minimum wage of at least $7.25 per hour. However, an employer may satisfy a portion of this obligation to a “tipped employee” by taking a “tip credit.” A “tip credit” refers to the practice of paying employees less than the minimum wage if the amount of gratuities the employee receives makes up the difference between the wage they actually receive and the standard minimum wage.
However, many tipped employees also perform a significant amount of non-tip-generating tasks, such as refilling condiments, setting tables, rolling silverware, preparing food, cleaning, and other preparations.
The new “Tips Dual Jobs” final rule establishes reasonable limits on the amount of tip credit an employer can take when a tipped worker isn’t doing tip-producing work. The rule clarifies that an employer may take a tip credit only when an employee is performing tip-producing work or performing work that directly supports work that is tip-producing for a limited amount of time.
Specifically, an employer can take a tip credit only for the time a worker spends performing tip-producing work or when:
- A tipped employee spends less than 20 percent of the hours they work during a workweek performing work that directly supports tip-producing work. Therefore, an employer cannot take a tip credit for any time that exceeds 20 percent of the workweek.
- A tipped employee performs directly supporting work for not more than 30 minutes. Therefore, an employer cannot take a tip credit for any time that exceeds 30 minutes.