Amendment to the FLSA Results in New Tip Pool Rules

On March 23, 2018, President Trump signed the Consolidated Appropriations Act for 2018 (Act) into law, which vacated the United States Department of Labor’s (DOL) 2011 regulations that barred tip pooling when employers do not claim a tip credit under section 3(m) of the Fair Labor Standards Act (FLSA).

On April 6, 2018, the DOL issued Field Assistance Bulletin No. 2018-3, which provides further explanation as to the impact the amendment will have when implemented. Specifically, the Act prohibits managers and supervisors from participating in tip pools, as the Act equates such participation with the employer’s keeping the tips. The DOL clarified that it will use the duties test for the executive exemption to determine whether an employee is a manager or supervisor for purposes of section 3(m).

The guidance also provides 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.” Therefore, unless there is a contrary state or local law in place, employees who are paid at least the minimum wage in cash can be required to share tips with cooks, dishwashers, and other non-management, non-supervisory “back of the house” employees.
As a result of the amendment, employers should proceed carefully with tip pooling practices. In addition, employers must ensure that managers and supervisory employees are excluded from any tip pooling arrangement moving forward.