Department of Labor Issues New Rule on Tip Regulations

Legal Alert

January 4, 2021

abstract business interior double exposure

On December 22, 2020, the Department of Labor (“DOL”) issued a long-awaited final rule regarding tip pooling for hospitality business employees. The new rule removes a prior regulation prohibiting “nontraditional” tip pools, which includes employees who are not regularly tipped. Under the new rule, an employer who both pays its staff a standard minimum wage and does not take a tip credit against the minimum wage obligation may now include employees who do not customarily and regularly receive tips, such as cooks and dishwashers, in mandatory tip pooling arrangements.

In this new rule, the DOL also:

provides that an employer may continue to take tip credit for employees in a tipped occupation when those employees perform related non-tipped duties either at the same time as the tipped duties or for a reasonable time before or after the tipped duties;
prohibits employers from keeping employees’ tips for any purpose, this includes prohibiting managers and supervisors from keeping or receiving tips meant for employees;
states that an employer must distribute employees’ tips on the regular payday or, in certain cases, as soon as practicable after the regular payday;
requires employers who do not take a tip credit but still collect employees’ tips in order to operate a mandatory tip pool to maintain records identifying each employee who receives tips, in addition to the weekly or monthly amount of tips received by each employee.

While this rule will not become effective for at least 60 days, it is important for employers to begin implementing these changes in anticipation of the effective date.

Employers need to be aware that some states impose their own rules for tips, and those rules may take precedence over the federal rules.

For more information, please contact your Labor & Employment law counsel at Smith, Gambrell, & Russell, LLP.