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The Restaurateur Insights

New Tip Pooling Rules Proposed by Department of Labor

November 29, 2019

Restaurant owners, tip pooling arrangements could change in 2020, due to a new set of proposed rules from the DOL.

Attention restaurant owners…the U.S. DOL has proposed new regulations governing the use of tip pooling arrangements. Make sure you read up on what could potentially change.

What is tip pooling?

Check out our article, Tip Pooling…Is Your Restaurant Doing This Lawfully? Essentially, tip pooling is a sharing arrangement among employees who normally receive tips (waiters, waitresses, bellhops, bussers, hosts, hostesses and bartenders). Waiters and waitresses who typically handle all transactions with customers give up a percentage of their tips at the end of the shift to any customarily and regularly tipped employees.

Existing rules

The Fair Labor Standards Act (FLSA) typically requires covered employers to pay employees at least the federal minimum wage (currently $7.25 per hour). Under Section 3(m) of the FLSA, an employer who meets certain requirements can count a limited amount of the tips that its tipped employees receive as a credit toward its minimum wage obligation, referred to as a “tip credit”. Employers can only take a tip credit for tipped employees and only if these employees retain all their tips. Employers who take a tip credit can also implement a tip pool to be shared among employees who customarily and regularly receive tips.

In an effort to clarify the tip pooling amendments in the Fair Labor Standards Act (FLSA), the DOL issued Field Assistance Bulletin No. 2018-3 on April 6, 2018. The guidance holds that employers who pay the full minimum wage under the FLSA ($7.25 per hour) can allow employees who are not typically tipped employees (like cooks and dishwashers) to participate in tip pools.

Also under something called the 80/20 Rule, servers are entitled to direct payment of the full minimum wage from their employers if side work (such as setting tables, refilling ketchups, rolling silverware, etc.) exceeds 20% of their shift time.

What’s new?

On October 7ththe DOL announced a new set of proposed rules which hold that:

  • Employers who do not take a tip credit are now permitted to include back-of-house employees in the tip pool (cooks, dishwashers etc.).
  • Employers may take a tip credit for any amount of time that a tipped employee performs non-tipped side duties (a modification of the 80/20 rule).

Comments on the proposed legislation are due on or before December 9, 2019. Questions? Contact us.

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