DOL Plans to Repeal Tip-Pooling Restrictions

Author: Michael Cardman, XpertHR Legal Editor

July 24, 2017

The US Department of Labor (DOL) has announced that it plans to rescind the current Fair Labor Standards Act (FLSA) restrictions on "tip pooling by employers that pay tipped employees the full minimum wage directly."

As long as tipped employees are paid a direct cash wage of at least $2.13 per hour, an employer is allowed to claim up to $5.12 per hour in tips received and retained by employees as a "tip credit" against their obligation to pay a minimum wage of $7.25 per hour. (If tipped employees earn less than $5.12 per hour in tips, the employer must make up the difference between the tips and the minimum wage.)

Employers also are allowed to set up tip-pooling arrangements, in which employees' tips are collected into a pool and then redistributed among staff.

DOL's announcement appears to refer to a DOL regulation issued in 2011 by the Obama administration, which states, "Tips are the property of the employee, whether or not the employer has taken a tip credit ... " (emphasis added). As a result, the DOL regulation currently prohibits an employer from setting up any tip-pooling arrangement in which it retains any of an employee's tips - even if it directly pays the full minimum wage of $7.25 per hour.

The 9th US Circuit Court of Appeals has upheld this regulation, but the 10th and 11th US Circuit Courts of Appeals have declined to defer to it. Some of these cases are being appealed to the US Supreme Court; but rescission of the regulation in question could render these appeals moot.

It remains to be seen how soon it will be before the restrictions are rescinded. The DOL set a target date of August 2017 for issuing a Noticed of Proposed Rulemaking (NPRM), which is the next step in the regulatory process. However, the DOL has missed many such target dates in the past.

Once an NPRM is issued, there will be a period of public comment. This typically lasts 30 to 60 days, but could be as long as 180 days. After the comment period has ended, a final rule will be issued rescinding the old regulation and officially taking it "off the books."