Last week, the U.S. Department of Labor (“DOL”) proposed a rule that would rescind an Obama-era regulation that prohibits tip-pooling. Tip-pooling occurs when servers share their tips with cooks, dishwashers, and other restaurant staff. Under the current Obama-era regulation, passed in 2011, employers cannot require servers and other employees receiving tips to share those tips with other employees who do not receive them. The proposed rule will change this, allowing employers to require tipped employees to share those tips with other employees.
Under the Fair Labor Standards Act (FLSA), employers can take a “tip credit,” which allows them to pay employees who receive tips less than the minimum wage, as long as their tips will increase their hourly rate to more than the minimum wage. Under the DOL’s new rule, employers can elect not to take the tip credit and pay all employees at least minimum wage. The employer can then require tips to be distributed to other employees, as these tips will no longer be considered property of the employee who received them.
The DOL will accept public comments on the proposed regulation until January 4, 2018. This likely means that the new regulation will take effect next spring. However, the DOL announced last July that it would not prosecute restaurants that engage in tip pooling, so for all practical purposes, tip-pooling has been legal since then. Contact me if you have questions about tip pooling.
