DOL to Propose Tip Credit Regulations

Author: Michael Cardman, XpertHR Legal Editor

October 7, 2019

The US Department of Labor (DOL) today announced it is proposing changes to its Fair Labor Standards Act (FLSA) minimum wage tip credit regulations.

The FLSA tip credit provisions have been in flux in recent years, leaving employers to navigate an ever-shifting legal landscape. If finalized, the regulations could help bolster two key interpretations of the FLSA.

But it is not clear whether the changes would mark the final word.

Including Back-of-the-House Employees in Tip Pools

The FLSA allows for the pooling of tips under certain conditions.

A 2011 regulation states that tip pools may include only employees who customarily and regularly receive tips. Under the Obama administration, the DOL interpreted this to mean that "front-of-the-house" employees - such as waiters, waitresses, bellhops, counter personnel (who serve customers), bussers and service bartenders - may be included in tip pools, but "back-of-the-house" employees who do not customarily and regularly receive tips - such as dishwashers, cooks, chefs and janitors - may not be included.

However, a 2018 amendment to the FLSA states that certain portions of these regulations have no further force or effect. Later that year, the DOL issued a Field Assistance Bulletin in which it said the amendment means that "employers who pay the full FLSA minimum wage are no longer prohibited from allowing employees who are not customarily and regularly tipped - such as cooks and dishwashers - to participate in tip pools."

The bulletin is not entitled to deference from the courts beyond its power to persuade. However, the new regulations would codify the bulletin into regulations after undergoing a 60-day notice-and-comment period. Then, courts could give the DOL's interpretation additional weight.

Rescinding the "80/20 Rule"

A DOL regulation permits an employer to take the tip credit for some time that the tipped employee spends in duties related to the tipped occupation (known in the industry as "sidework"), even though the duties are not by themselves directed toward producing tips. For example, a waitperson who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses is considered to be engaged in a tipped occupation even though these duties are not tip producing.

Enforcement guidance from the DOL's Field Operations Handbook had prohibited an employer from taking a tip credit for time spent performing related duties / sidework if an employee spent more than 20% of his or her workweek performing related duties / sidework. Commonly referred to as the "80/20 rule," it was the basis for several lawsuits.

But in 2018 the DOL issued an opinion letter, and then in 2019 followed it up with a field assistance bulletin, superseding the 80/20 rule. The DOL said it will no longer limit the amount of related duties / sidework that may be performed as long as the work is performed contemporaneously with direct customer-service duties and all other requirements of the FLSA are met.

Several federal courts have declined to defer to this interpretation. However, if it becomes codified in notice-and-comment regulations, the courts may give it greater weight.

Other Proposals

In addition, the DOL's proposed regulations would:

  • Explicitly prohibit employers, managers, and supervisors from keeping tips received by employees;
  • Incorporate in the regulations, as provided under the 2018 FLSA amendment, new civil money penalties, currently not to exceed $1,100, that may be imposed when employers unlawfully keep tips; and
  • Withdraw the 2017 proposed rule, which was superseded by the 2018 amendments.