New DOL regs provide clarity for compensating tipped employees

The U.S. Department of Labor (DOL) recently announced a final rule amending the Fair Labor Standards Act (FLSA) regulations covering tipped employees. Barring any changes, the rule takes effect in February 2021.

Tip sharing and tip pooling

Under the revised regulations announced in late December 2020, employers are explicitly prohibited from retaining any tips received by their employees for any purpose, regardless of whether the business takes a tip credit. Most managers or supervisors also are prohibited from receiving any portion of employees’ tips.

If your company takes a tip credit, you must continue to ensure any mandatory, “traditional” tip pool includes only workers who customarily and regularly receive tips. The new regulations, however, now allow those of you who don’t take a tip credit—i.e., pay at least the full minimum wage—to implement mandatory, “nontraditional” tip pools that may include back-of-the-house employees such as cooks and dishwashers.

If you choose to implement the mandatory, nontraditional tip pool, you must follow similar recordkeeping requirements as those who operate traditional, mandatory pools, such as (1) identifying employees who receive tips on payroll records and (2) recording the amounts of tips received by each individual.

The new regulations also clarify that when you collect tips to distribute as part of a mandatory tip pool (traditional or nontraditional), you must fully redistribute the tips at least as often as you pay other wages.

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