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FLSA Amendment Expands the Scope of Employees Who Can Share in Tip Pools

May 2018
Naureen Amjad


In the past, employers were limited to permitting only those employees who customarily received tips from customers to share in tip pools.  Back-of-the-house employees were barred from participating in the "pooled tips" without the employer running afoul of the Fair Labor Standards Act (FLSA).  On March 27, 2018, the FLSA was amended with respect to rules on tipped employees through the Consolidated Appropriations Act of 2018 (CAA). 

To provide some background, the Department of Labor's (DOL) position on tip-pooling since 2011 had been that employers needed to comply with tip-pooling requirements to assure that tipped employees were not having their tip pool appropriated to pay the wages of non-tipped employees.  In late 2017, the DOL sought to rescind its position on tip-pooling and proposed a rule that would permit employers to require tipped employees (e.g., servers, bussers, runners and bartenders) who were paid at least the full minimum wage, without the tip credit, to share their tips with employees who did not customarily receive tips (e.g., cooks and dishwashers).  (A tip credit under the FLSA permits an employer to pay its tipped employees less than the federal minimum wage of $7.25 per hour, and a minimum hourly wage of $2.13 per hour, relying on customer tips to satisfy the difference).  The DOL's proposal was met with strong opinions from employers, employees and practitioners.

The FLSA amendment attempts to strike a balance by adding language to the extent that all tips are the property of the tipped employees receiving them and that employers may not retain employees' tips for any purpose regardless of whether the employer takes a tip credit.  The FLSA amendment extends this concept to "managers" and "supervisors" in order to preclude them from retaining tips. However, the FLSA amendment fails to define those terms, which creates ambiguity as to whether employees serving in a supervisory or managerial role in addition to a traditionally tipped role would be precluded from receiving and/or sharing tips.  The DOL's Field Assistance Bulletin No. 2018-3 further clarified that the FLSA Amendment served to nullify the 2011 regulations prohibiting tip sharing with non-tipped employees even when an employer did not receive the benefit of a tip credit. 

In sum, the FLSA amendment accomplished the following:

(i) Permitting the sharing of tips between traditionally tipped employees and traditionally non-tipped, non-supervisory employees when no tip credit is taken by the employer;

(ii) Prohibiting the sharing of tips between traditionally tipped employees and traditionally non-tipped, non-supervisory employees when a tip credit is taken by the employer; and

(iii) Prohibiting retention of tips by an employer, manager or supervisor under any circumstance.

The FLSA amendment had no effect on the long-standing practice of employers deducting credit card processing fees associated with processing credit card tips or operating a lawful tip pool.

While the full impact of the FLSA's 2018 amendment is unknown at this time, the DOL has indicated that it will issue guidance and/or rules in the future. Stay tuned for upcoming clarifications.

For questions or information on how to implement the FLSA's amendment at your workplace, please contact Naureen Amjad, a Partner and Leader of Pedersen & Houpt’s Employment Practice Group, at 312.261.2273 or at namjad@pedersenhoupt.com..