Rules relating to tip credit and pooling have resulted in a significant amount litigation in the hospitality industry, and, in many cases, substantial liability or settlements. Yesterday, the U.S. Department of Labor (“DOL”) announced its new final rule that revises current regulations pertaining to tipped employees. The final rule specifically addresses tipped occupations that qualify for application of a tip credit, as well as permissible and impermissible tip pooling practices.

Allowance of Tip Credit for Tasks Related to Tip-Producing Occupations

The final rule codifies the DOL’s previous guidance that employers may take a tip credit for any amount of time an employee in a tip-earning occupation performs related to non-tipped duties performed contemporaneous with, or within a reasonable time immediately before or after, the tipped duties. The final rule identifies certain front-of-the-house tasks, including cleaning and setting tables, making coffee, and occasionally washing dishes or glasses as related non-tipped duties that qualify as time for which a tip credit may be taken. In addition to these examples, the final rule provides that a non-tipped duty is related to a tip-related occupation if the duty is identified as a task of a tip-producing occupation in the Occupational Information Network (O*Net). This is distinguishable, however, from work unrelated to the tipped occupation, which would then be considered a “dual job” for which a tip credit could not be taken by an employer.

Rules Pertaining to Permissible and Impermissible Tip Pooling

The final rule reiterates the provision in the Consolidated Appropriations Act of 2018 that prohibits employers, managers, and supervisors from keeping any tips received by employees. In other words, the “house” may never retain tips, without exception.

In addition, the final rule amends its previous regulation to remove language that had imposed restrictions on an employer’s use of tips when the employer does not take a tip credit, meaning that back-of-the-house employees, such as cooks and dishwashers, can now participate in a tip pool. The final rule does not alter the DOL’s current regulation that provides that employers who take a tip credit against tipped employees’ wages may maintain a tip pool among only tipped employees, i.e. front-of-the-house workers, and not employees who do not customarily and regularly receive tips, i.e. back-of-the-house workers.

Effective Date of the Rule

The final rule will take effect 60 days after being published in the Federal Register. The final rule has already been submitted to the Office of the Federal Register for publication, which is currently pending.

Because of the apparently strategic timing of the announcement by the outgoing Trump Administration of the final rule, it is possible that the Biden administration will seek to curtail enforcement of the final rule, or, perhaps, even pursue new rulemaking to effectively reverse the final rule, or portions thereof.

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We will be sure to keep you abreast of all new developments. In addition, because state laws regarding tip credit and tip pooling may differ substantially from federal standards, and compliance with federal law does not excuse satisfying state and local requirements, it remains important for businesses with tipped employees to ensure compliance with all applicable laws.

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