On December 22, 2020, the Department of Labor (“DOL”) announced a final rule revising its tipped employee regulations. The final rule is designed to address and incorporate amendments made to section 3(m) of the Fair Labor Standards Act (“FLSA”) by the Consolidated Appropriations Act of 2018 (“CAA”). That amendment prohibits employers from keeping tips received by their employees, regardless of whether the employer takes a tip credit. It also prohibits employers from allowing managers or supervisors to keep any portion of employee’s tips.

In this final rule, the DOL:

• Permits employees who do not take a tip credit to implement mandatory “nontraditional” tip pools (tip pools that include employees who do not customarily and regularly receive tips);
• Explicitly prohibits employers—regardless of whether they take a tip credit—from keeping employees’ tips for any purpose. This includes prohibiting managers and supervisors from keeping tips received by employees;
• Amends its regulations to state that an employer who collects tips to facilitate a mandatory tip pool must fully redistribute the tips no less often than when it pays wages to avoid keeping the tips in violation of section 3(m)(2)(B);
• Incorporates the CAA’s new requirements regarding civil money penalties (CMP) into its regulations and revises additional portions of its CMP regulations to address courts decisions that have raised concerns;
• Incorporates a new recordkeeping requirement for employers who do not take a tip credit but collect employees’ tips to operate a mandatory tip pool; and
• Codifies recent guidance explaining that an employer may take a tip credit for time that an employee in a tipped occupation performs related non-tipped duties either contemporaneously with or for a reasonable time immediately before or after performing tipped duties.

Notably, the DOL’s Office of the Inspector General issued a report on December 11, 2020 criticizing the agency’s process of issuing the Notice of Proposed Rulemaking for the initial rule.

As ECJ has reported before, California has different rules regarding tips, which must be followed in any California tip pooling system.