DOL Will Rescind Controversial Tip-Pooling Rule

The DOL has issued a Notice of Proposed Rulemaking to rescind a controversial 2011 regulation that, contrary to prior practice, prohibited employers from requiring tipped employees to share their tips with non-tipped employees, even where the employer does not take a tip credit against its minimum wage obligations under the Fair Labor Standards Act.

The FLSA provides that an employer may partially fulfill its minimum wage obligation to tipped employees with a “tip credit” based on tips received by the employees. The employer may also require tipped employees to participate in tip pools, by which the tips are shared among the participants. In order for the employer to take the tip credit, however, the tip pool must consist only of employees who are “customarily and regularly tipped.” If the employer does not take a tip credit, the FLSA is silent on whether the tip pool may also include employees who do not customarily receive tips. In 2011, however, the Department of Labor issued a rule that expanded the tipped workers-only restriction for tip pools to all employers, whether or not they took a tip credit.

The DOL’s regulation was the subject of considerable litigation, with federal appellate courts split on whether the DOL had the authority to issue the rule. Now, with the proposed rescission of the rule, the DOL will allow employers who do not take a tip credit towards the minimum wage to utilize tip pools that include both tipped and non-tipped employees. As before, however, employers who claim a tip credit must include only tipped employees in any tip pool.

The DOL is accepting comments from the public on the proposed rule through February 5, 2018. Comments may be submitted through the Federal Register webpage for the proposed rule. DOL will subsequently issue the final rule.