The Department of Labor (DOL) is proposing to revise the agency’s 2011 tip pool regulations to allow the sharing of tips with back-of-the-house employees provided everyone is paid the minimum wage.

dol-proposes-changes-to-tip-credit-regulationsIt has published a Notice of Proposed Rulemaking (NPRM) in the Federal Register, in which it states the agency is  “proposing to rescind the parts of its tip regulations that bar tipsharing arrangements in establishments where the employers pay full Federal minimum wage and do not take a tip credit against their minimum wage obligations.”

In other words, under the proposed rule employers can share tips with “restaurant cooks, dishwashers, and other traditionally lower-wage job classifications,” provided all employees earn the minimum wage and employers don’t take the tip credit available under the Fair Labor Standards Act (FLSA).

(For tipped employees, employers may take what is called a “tip credit,” meaning they can pay tipped employees less than the minimum wage ((the federal tipped minimum wage is $2.13)) so long as the tips bring that wage up to $7.25 an hour, the federal minimum.)

According to the DOL, the proposal would help decrease wage disparities between tipped and non-tipped workers – an option that is currently restricted by a rule promulgated in 2011 that has been challenged in a number of courts. However, as critics have pointed out, once employees are paid the minimum wage, tips belong to the establishment, not the server, bartender or busboy. The restaurant’s owner can thus collect all the tips and share them equitably — or if he so chooses, just pocket the money.

The Department of Labor promulgated tip regulations in 2011 that restricted this sharing option. Since 2011, there has been a significant amount of litigation involving the tip pooling and tip retention practices of employers that pay a direct cash wage of at least the federal minimum wage and do not claim a FLSA tip credit.  There has also been litigation directly challenging the department’s authority to promulgate the provisions of the 2011 regulations that restrict sharing of tips.

Moreover, in the past several years, several states have changed their laws to require employers to pay tipped employees a direct cash wage that is at least the federal minimum wage.  This means that fewer employers can take the FLSA tip credit.  The department’s proposed new rule follows these developments, along with serious concerns that it incorrectly construed the statute when promulgating the 2011 regulations.

The 30-day comment period for the NPRM ends on Jan. 4, 2018. You may submit comments on or before that date at or by following the instructions listed in the NPRM as published in the Federal Register.