New Tax Law Amends FLSA Tip Pooling Provision


The tip pooling provision of the Fair Labor Standards Act, which has been the subject of much controversy, was amended as part of the omnibus budget bill that was passed by Congress on March 21, 2018.

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 was silent on whether the tip pool may also include employees who do not customarily receive tips.

In 2011, 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. The DOL then announced a proposed rescission of the rule, but this announcement came under fire when it was discovered that the agency withheld an unfavorable economic analysis in its proposed rulemaking.

Now, reportedly in a deal with Secretary of Labor Acosta, Congress has amended the FLSA to state:

An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.

The FLSA’s penalty provisions were also amended accordingly. It is likely that the DOL will issue further guidance on the application of this new amendment.