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Department of Labor Moves One Step Closer to Allowing Employers More Flexibility in Their Tip Pooling Practices

December 13, 2017

The U.S. Department of Labor (DOL) published a notice of proposed rulemaking (NPRM) in the December 5, 2017 edition of the Federal Register, with a proposal to rescind its 2011 regulations on tip pooling.  The NPRM appears to be, at least in part, a response to efforts by the hospitality industry – particularly the restaurant industry – to press for change to the strict rules on tip sharing. 

The 2011 tip pooling regulations have been a source of substantial litigation in the hospitality industry over the past six years, resulting in a split among courts throughout the United States.  Notably, the 2011 regulation provides that tips under the Fair Labor Standards Act are the property of the employee, regardless of whether the employer takes a tip credit.

So, even if an employer pays a tipped employee minimum wage and does not claim a tip credit, DOL’s position was that the tips still belonged to the employee.  This meant that employers were prohibited from entering into tip-sharing agreements with back-of-the-house employees who are not customarily and regularly tipped, such as busboys and dishwashers.   (A history of the regulations and ensuing litigation can be found in our September 20, 2017, newsletter here.) 

In the December NRPM, DOL proposes to rescind the current tip regulations for employers who do not take a tip credit and who pay at least the federal minimum wage to employees.  In short, DOL would allow hospitality employers and employees to agree to establish a tip pool that includes back-of-the-house employees – as long as all employees are paid minimum wage and the employer is not claiming a tip credit on their wages

Additionally, the proposal solicits comment and information on a number of questions, including:

  • The prevalence of employer-required tip pools and the factors that go into deciding whether to use them;
  • Whether tip-pooling arrangements distribute monies based upon a fixed percentage or a fixed dollar amount; and
  • Whether employers would include non-tipped employees in future tip-pooling arrangements if the proposal became final.

In the meantime, DOL has issued a non-enforcement policy concerning the 2011 regulations. Accordingly, department agents have been instructed to refrain from enforcing the regulations concerning tip pools for employees who are paid at least the minimum wage and whose employers do not utilize tip credits.  The policy will remain in effect until the completion of the rulemaking process for the NPRM.


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