In 2011, the U.S. Department of Labor (“DOL”) introduced regulations affirming that tips are the property of the employee regardless if the employer uses a tip credit under the FLSA. Under this framework, only “customarily tipped employees” can receive distributions from a company tip pool. Tip pools set up by employers to include employees who are not regularly tipped employees are invalid. This limitation applies even where the employees contributing to a tip pool are paid the applicable minimum wage. Moreover, employers and management staff are precluded from receiving any portion of tip pools under the current regulation. The 2011 regulation has led to voluminous litigation over what constitutes a “customarily tipped employee” and has resulted in inconsistent rulings from various courts.

The DOL under the Trump administration has proposed a change to the 2011 regulation that would eliminate many of the restrictions on an employer’s use of tip pools. The proposed change would allow employers to include non-tipped employees in tip pools, including back-of-house employees who have little to no interaction with customers and even management staff or business owners.

What does this mean for you? The proposed regulation would apply only to employers who pay its tipped employees at least the federal minimum wage. Employers who continue to take advantage of the tip credit and pay tipped employees lower than the minimum wage would still be subject to the 2011 regulation’s restrictions on sharing of tips.

The DOL’s public comment on the proposed changes to the 2011 regulation closed in February 2018, and the DOL is expected to present a proposed regulation in the coming months. Stokes Wagner will keep you updated. Stay tuned!

For more legal news, check out our quarterly update for April 2018!

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