NOTICE: The “Tip Regulations Under the Fair Labor Standards Act (FLSA)” final rule (2020 Tip final rule) was published on December 30, 2020, with an effective date of March 1, 2021. See 85 FR 86756. On February 26, 2021, the Department issued a final rule delaying the effective date until April 30, 2021, in order to allow the Department the opportunity to review issues of law, policy, and fact raised by the 2020 Tip final rule. See 86 FR 11632.

On March 23, 2021, after careful review of the issues raised by the 2020 Tip final rule, the Department announced two Notice of Proposed Rulemakings (NPRMs).

The first NPRM titled, “Tip Regulations Under the Fair Labor Standards Act (FLSA); Delay of Effective Date,” (See 86 FR 15811) proposes to further extend, until December 31, 2021, the effective date of two portions of the 2020 Tip final rule related to the assessment of civil money penalties (CMPs) under the FLSA, and the portion addressing the FLSA tip credit’s application to tipped employees who perform tipped and non-tipped duties. The remainder of the 2020 Tip final rule—consisting of those portions addressing the keeping of tips and tip pooling, recordkeeping, and minor technical changes made to update the regulations to reflect the new statutory language and citations added by the CAA amendments—will become effective on April 30, 2021.

The Department invites public comments on this first NPRM until April 14, 2021. To comment on this NPRM, visit www.regulations.gov.

The second NPRM titled, “Tip Regulations under the Fair Labor Standards Act (FLSA); Partial Withdrawal,” (See 86 FR 15817) proposes to withdraw and repropose the two portions of the 2020 Tip final rule addressing CMP assessments. This NPRM also seeks comments on whether to revise one other portion of the 2020 Tip final rule (addressing “managers and supervisors” who cannot keep employee’s tips), and asks questions about how it might improve the recordkeeping requirements in the 2020 Tip final rule in a future rulemaking. The Department invites public comments on this NPRM until May 24, 2021. To comment on this NPRM, visit www.regulations.gov.

The Department encourages interested parties to submit comments on each of these NPRMs by 11:59 pm ET on their respective comment period deadline. Comments must be submitted separately for each proposed rulemaking, each of which can be identified by its title. Anyone who submits a comment (including duplicate comments) should understand and expect that the comment, including any personal information provided, will become a matter of public record and will be posted without change to www.regulations.gov. WHD posts comments gathered and submitted by a third-party organization as a group under a single document ID number on www.regulations.gov.

 

  1. What does the Fair Labor Standards Act (FLSA) require employers to pay tipped employees?
  2. Why did the Department change its tip regulations?
  3. What are the changes made to the FLSA by the Consolidated Appropriations Act of 2018 (CAA)?
  4. What are the key provisions in the 2020 Tip final rule?
  5. Can an employer that pays the full minimum wage and does not take a tip credit include non-tipped workers in a tip pool?
  6. Do the amendments to the FLSA allow employers that take a tip credit to include non-tipped workers in a tip pool?
  7. Does the 2020 Tip final rule require employers to distribute tips from the tip pool to employees daily?
  8. What recourse do employees have if their employer keeps tips?
  9. Have the portions of the 2020 Tip final rule addressing the application of the FLSA’s tip credit provision to tipped employees who perform both tipped and non-tipped duties (i.e., dual jobs) gone into effect?
  10. Have the portions of the 2020 Tip final rule addressing to the assessment of CMPs under the FLSA gone into effect?
  11. What are the benefits of the 2020 Tip final rule?
  12. Does the 2020 Tip final rule require employers to make changes to their pay practices?
  13. What if a state or city has its own laws addressing tipped employees?
  14. Are the CAA amendments to the tip language of the FLSA already effective?
  15. When does the 2020 Tip final rule take effect?

 

1. What does the Fair Labor Standards Act (FLSA) require employers to pay tipped employees?

The FLSA generally requires covered employers to pay employees at least the federal minimum wage, which is currently $7.25 per hour. Under section 3(m)(2)(A) of the FLSA, however, an employer is permitted to credit at least some of the tips that tipped employees receive toward its federal minimum wage obligations. Specifically, an employer can satisfy its obligation to pay those employees the federal minimum wage by paying a lower direct cash wage (currently no less than $2.13 per hour) and counting a limited amount of its employees’ tips (no more than $5.12 per hour) as a partial credit to satisfy the difference between the direct cash wage paid and the federal minimum wage (known as a “tip credit”) if the employer follows certain requirements.

Employers that take a tip credit under the FLSA must ensure that tipped employees receive at least the federal minimum wage when direct (or cash) wages and the tip credit amount are combined. If an employee’s tips combined with the employer’s direct (or cash) wages of at least $2.13 per hour do not equal at least the federal minimum wage of $7.25 per hour, the employer must make up the difference on the regular pay day for the pay period. For example, if an employer pays a tipped employee $3.00 per hour in direct wages, the tipped employee must receive at least $4.25 per hour in tips to satisfy the federal minimum wage requirement.

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2. Why did the Department change its tip regulations?

The Department revised its regulations to implement changes made by the Consolidated Appropriations Act of 2018 (CAA) to section 3(m) of the FLSA. The law prohibits employers from keeping tips received by their employees, regardless of whether the employer takes a tip credit under the FLSA. The law also prohibits managers and supervisors from keeping employees’ tips or participating in a tip pool. The revision also allows employers that pay tipped employees at least the full FLSA minimum wage and do not claim a tip credit to include workers who do not customarily or regularly receive tips, such as cooks or dishwashers, in a mandatory “nontraditional” tip pool.

The CAA amendments did not affect regulations that have been in place for employers that take a tip credit under the FLSA. Therefore, employers that claim a tip credit still can require only workers who customarily and regularly receive tips to participate in a “traditional” mandatory tip pool. This means employees such as cooks or dishwashers cannot be in such a tip pool.

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3. What are the changes made to the FLSA by the Consolidated Appropriations Act of 2018 (CAA)?

The CAA made several changes to section 3(m) of the FLSA. For example, the law:

  • Prohibits employers from keeping tips received by their employees for any purpose, regardless of whether the employer takes a tip credit under the FLSA.
  • Prohibits managers and supervisors from receiving or keeping employees’ tips, including from a tip pool.
  • Suspends regulatory language that restricted an employer’s use of employees’ tips when the employer does not take a tip credit. Employers that do not take a FLSA tip credit may now include a broader group of workers, such as cooks or dishwashers, in a mandatory tip pool.
  • Imposes new civil money penalties not to exceed $1,100 when employers unlawfully keep employees’ tips.1

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4. What are the key provisions in the 2020 Tip final rule?

The 2020 Tip final rule:

  • removes the portions of the regulations that prohibited employers that do not take a tip credit from implementing mandatory “nontraditional” tip pools—that is, 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, which includes prohibiting managers and supervisors from keeping tips received by employees;
  • amends its regulations to state that an employer that collects tips to facilitate a mandatory tip pool must fully redistribute the tips no less often than when it pays wages to avoid “keep[ing]” 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 concerns2;
  • incorporates a new recordkeeping requirement for employers that do not take a tip credit but collect employees’ tips to operate a mandatory tip pool;
  • codifies recent guidance addressing when an employer may take a tip credit for time that an employee in a tipped occupation performs related non-tipped duties3;
  • amends the regulations that address the payment of tipped employees under Executive Order 13658 (Establishing a Minimum Wage for Contractors) to reflect the corresponding changes in the FLSA regulations and to otherwise align those regulations with the Executive Order.

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5. Can an employer that pays the full minimum wage and does not take a tip credit include non-tipped workers in a tip pool?

Yes, employers that pay the full minimum wage and do not take a tip credit may include workers who are not managers or supervisors in a mandatory tip pool. This includes workers who do not customarily and regularly receive tips, such as cooks and dishwashers.

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6. Do the amendments to the FLSA allow employers that take a tip credit to include non-tipped workers in a tip pool?

No. The amendments to section 3(m) of the FLSA do not eliminate any of the pre-existing requirements for employers that take a tip credit. Employers that take a tip credit under the FLSA may require a tip pool composed of only those employees in occupations that customarily and regularly receive tips (for example, servers and bussers). As mentioned above, employers, managers, and supervisors may not participate in the tip pool or keep employees’ tips regardless of whether the employer takes a tip credit. However, a manager or supervisor may keep tips that he or she receives directly from customers based on the service that the manager or supervisor directly provides.

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7. Does the 2020 Tip final rule require employers to distribute tips from the tip pool to employees daily?

No. The 2020 Tip final rule does not require that employers distribute employees’ tips daily. Employers that facilitate tip pooling by collecting and redistributing employees’ tips do not violate the prohibition on keeping tips if they fully and promptly distribute any cash and credit card tips collected on the regular payday or, in certain cases, as soon as practicable after the regular payday.

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8. What recourse do employees have if their employer keeps tips?

The CAA amended sections 16(b) and 16(c) of the FLSA to permit private parties and the Department to recover tips unlawfully kept by an employer, plus an equal amount in liquidated damages. Accordingly, employees may sue an employer that keeps tips or file a complaint with the local Wage and Hour Division district office by calling 1-866-4US-WAGE.

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9. Have the portions of the 2020 Tip final rule addressing the application of the FLSA’s tip credit provision to tipped employees who perform both tipped and non-tipped duties (i.e., dual jobs) gone into effect?

No. On February 26, 2021, the Department issued a final rule delaying the effective date of the 2020 Tip final rule until April 30, 2021. On March 25, 2021, the Department proposed to further extend the effective date of the portion of the 2020 Tip final rule that addresses employers that take a tip credit for non-tip producing activities related to the tipped occupation until December 31, 2021 (See “Tip Regulations Under the Fair Labor Standards Act (FLSA); Delay of Effective Date,” 86 FR 15811). The 2020 Tip final rule reflected the Department’s 2018 guidance on this issue, which removed the 20 percent limitation on the amount of time that an employee for whom an employer takes a tip credit can perform related, non-tipped duties. See WHD Opinion Letter FLSA2018-27 (Nov. 8, 2018). Under that guidance, an employer may take a tip credit for time that an employee in a tipped occupation performs related non-tipped duties—as long as those duties are performed contemporaneously with or for a reasonable time immediately before or after the tipped duties.

The extension of the effective date will provide the Department the opportunity to evaluate additional information about the questions of law, policy and fact raised by this portion of the 2020 Tip final rule. The Department invites public comments on this proposed delay, as well as on the merits of withdrawing or retaining this portion of the rule. Comments must be received by April 14, 2021. See www.regulations.gov.

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10. Have the portions of the 2020 Tip final rule addressing to the assessment of CMPs under the FLSA gone into effect?

No. On February 26, 2021, the Department issued a final rule delaying the effective date of the 2020 Tip final rule until April 30, 2021. On March 25, 2021, the Department proposed to further extend the effective date of the two portions of the 2020 Tip final rule related to the assessment of CMPs under the FLSA until December 31, 2021 (See “Tip Regulations Under the Fair Labor Standards Act (FLSA); Delay of Effective Date,” 86 FR 15811). These two portions address the statutory provision establishing CMPs for violations of section 3(m)(2)(B) of the Act and the portion of its CMP regulations which address when a certain violation is “willful.” On March 25, the Department also proposed to withdraw and repropose these two portions of the 2020 Tip final rule. The Department seeks comments on the proposed delay and the reproposed provisions. Comments on the proposed delay must be received by April 14, 2021. Comments on the reproposed provisions must be received by May 24, 2021. See www.regulations.gov.

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11. What are the benefits of the 2020 Tip final rule?

The 2020 Tip final rule addressed statutory changes to the FLSA made by the CAA, such as prohibiting employers—including supervisors and managers—from keeping tips received by workers, regardless of whether the employer takes a tip credit. This prohibition establishes significant protections for tipped employees. The 2020 Tip final rule also permits an employer that does not take a tip credit to include non-tipped workers, such as cooks and dishwashers, in nontraditional tip-sharing agreements and, by doing so, boost their earnings.

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12. Does the 2020 Tip final rule require employers to make changes to their pay practices?

No. Employers may choose to take, or not take, a tip credit under the FLSA and may also choose to implement, or not, a mandatory tip pool. The 2020 Tip final rule eliminates certain regulatory restrictions on an employer’s use of tips if the employer pays at least the full federal minimum wage and does not take a tip credit. This allows employers to include non-tipped employees, such as cooks and dishwashers in a restaurant, in the tip pool.

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13. What if a state or city has its own laws addressing tipped employees?

The FLSA sets minimum wage and hour standards for covered workers but does not preempt states or localities from establishing more protective standards. If a state or locality establishes a standard more protective than the FLSA, an employer in that state or locality must follow the higher standard. Just as some states and localities have minimum wage rates higher than the current federal minimum wage of $7.25 per hour, certain states and localities have enacted their own restrictions on an employer’s ability to claim a tip credit, use tips, or set up a mandatory tip pool. This 2020 Tip final rule does not preempt or otherwise affect any of those state or local laws.

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14. Are the CAA amendments to the tip language of the FLSA already effective?

Yes. Changes to FLSA section 3(m) became effective on March 23, 2018, when the CAA was enacted. This means employers are prohibited from keeping employee tips, regardless of whether the employer takes a tip credit. The Act also prohibits managers or supervisors from keeping employees’ tips, either directly or indirectly, such as via a tip pool. Employers who do not take a tip credit are no longer prohibited from allowing employees who are not customarily and regularly tipped—such as cooks and dishwashers—to participate in tip pools.

The 2020 rulemaking implements those statutory changes into the Department’s regulations, including by defining the terms “managers and supervisors,” and conforming the existing tip regulations to the CAA amendments.

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15. When does the 2020 Tip final rule take effect?

The 2020 Tip final rule was published on December 30, 2020, with an effective date of March 1, 2021. On February 26, 2021, the Department issued a final rule delaying the effective date of the 2020 Tip final rule until April 30, 2021, in order to allow the Department the opportunity to review issues of law, policy, and fact raised by this final rule. See 86 FR 11632.

On March 25, 2021, the Department published two NPRMs.

The first NPRM titled, “Tip Regulations Under the Fair Labor Standards Act (FLSA); Delay of Effective Date,” (See 86 FR 15811) proposes to further extend, until December 31, 2021, the effective date of three portions of the 2020 Tip final rule—the two portions related to the assessment of CMPs under the FLSA and the portion addressing the FLSA tip credit’s application to tipped employees who perform tipped and non-tipped duties. The remainder of the 2020 Tip final rule—consisting of those portions addressing the keeping of tips and tip pooling, recordkeeping, and minor technical changes made to update the regulations to reflect the new statutory language and citations added by the CAA amendments—will become effective on April 30, 2021.

The Department invites public comments on this first NPRM until April 14, 2021. To comment on this NPRM, visit www.regulations.gov.

The second NPRM titled, “Tip Regulations under the Fair Labor Standards Act (FLSA); Partial Withdrawal,” (See 86 FR 15817) proposes to withdraw and repropose the two portions of the 2020 Tip final rule addressing CMP assessments. This NPRM also seeks comments on whether to revise one other portion of the 2020 Tip final rule (addressing “managers and supervisors” who cannot keep employee’s tips), and asks questions about how it might improve the recordkeeping requirements in the 2020 Tip final rule in a future rulemaking. The Department invites public comments on this NPRM until May 24, 2021. To comment on this NPRM, visit www.regulations.gov.

The Department encourages interested parties to submit comments on each of these NPRMs by 11:59 pm ET on their respective comment period deadline. Comments must be submitted separately for each proposed rulemaking, each of which can be identified by its title. Anyone who submits a comment (including duplicate comments) should understand and expect that the comment, including any personal information provided, will become a matter of public record and will be posted without change to www.regulations.gov. WHD posts comments gathered and submitted by a third-party organization as a group under a single document ID number on www.regulations.gov.

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[1] The Federal Civil Penalties Inflation Adjustment Act of 1990 (Pub. L. No. 101-410), as amended by the Debt Collection Improvement Act of 1996 (Pub. L. No. 104-134, sec. 31001(s)) and the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Pub. L. No. 114-74, sec. 701), requires that inflationary adjustments be made annually in these civil money penalties according to a specified formula.

[2] The Department has proposed to further extend, until December 31, 2021, the effective date of these portions of the 2020 Tip Rule, and has proposed to withdraw and revise these portions of the rule.

[3] The Department has proposed to further extend, until December 31, 2021, the effective date of this portion of the 2020 Tip Rule.  The Department is continuing to review these portions.