Don't Forget the Tip! DOL issues new regulations for tipped employees

Posted by Brendan Fitzgerald on April 05, 2011

Not even the United States Department of Labor (DOL) forgets the tip. On April 5, 2011, the DOL amended the Fair Labor Standards Act (FLSA) regulations for tipped employees. The regulations require employers with tipped employees to take action before the regulations take effect on May 5, 2011. Here are a few “tips” for employers regarding the new regulations:

  • Required Notice of Tip Credits

    As before, employers may take a tip credit to make up for the difference between the minimum wage for tipped employees ($2.13 per hour) and the federal hourly minimum wage ($7.25). However, an employer must now provide notice of certain information regarding tip credits. This notice must include: (a) the employee’s cash wage; (b) the amount of the tip credited toward the minimum wage; (c) confirmation that all tips are to be retained by the employee, unless the employee is part of a valid tip pool; and (d) acknowledgement that a tip credit cannot be applied unless the employee has been informed of the credit.

    Although this notice can be provided verbally or in writing, it makes sense to provide written notice in the event of a challenge by employees. Such notice could, for instance, be placed alongside other employer notices on a bulletin board or in break room. As an additional layer of protection, employers should consider asking tipped employees to sign an acknowledgement of receipt of the notice.
  • No Per Se Threshold for Valid Tip Pools

    Federal law still allows employers to require tipped employees to pool their tips, if the required percentage to be pooled is “customary and reasonable.” Previously, the DOL stated that tip pool contributions amounting to less than 15% of the employee’s tips would not be questioned. This 15% “threshold” has been removed from the new regulations.
  • Employees Own Tips Regardless of Employers’ Use of Tip Credit

    The DOL also used the new regulations to codify certain positions previously set forth in its Opinion Letters. For example, the regulations now establish that employees own their tips, even if the employer does not avail itself of a tip credit to satisfy minimum wage requirements. Previously, FLSA regulations held that employees owned tips only to the extent tips were claimed as a tip credit.

A copy of the Final Rule, as published in Federal Register, is available at http://www.gpo.gov/fdsys/pkg/FR-2011-04-05/pdf/2011-6749.pdf.