DOL Allows Certain Parts of Tip-Sharing Rule to Take Effect

Changes and delays proposed for other parts of final rule

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A provision in a final rule that prohibits employers from taking any portion of workers' gratuities will take effect on April 30, according to the U.S. Department of Labor (DOL). However, the department wants to change or delay other aspects of the rule.

Former President Donald Trump's administration issued a final rule amending the Fair Labor Standards Act's (FLSA's) requirements for tipped workers, which was scheduled to take effect on March 1. President Joe Biden's administration asked federal agencies to freeze proposed and pending regulations to give new leaders time to review pending rules, and the DOL delayed the tip-sharing rule until April 30.

The DOL recently announced that, "after considerable review," the following portions of the final rule will take effect on April 30:

  • A provision that prohibits employers from keeping workers' tips, regardless of whether the employer takes a tip credit.
  • A provision that allows employers that do not take a tip credit to include nontipped workers—such as cooks and dishwashers—in tip pools.

Under the FLSA, restaurants and other hospitality employers may be eligible to take a tip credit, meaning they can pay tipped workers (such as servers and bartenders) less than the standard minimum wage, as long as workers' tips make up the difference. 

The final rule's record-keeping requirements will also take effect. However, the DOL is proposing two new rules to replace other portions of the prior administration's rule.

"Tipped workers are among those hardest hit amid the pandemic, and the Wage and Hour Division has made protecting these essential front-line workers a priority," said Jessica Looman, the DOL's Wage and Hour Division deputy administrator. "These essential workers deserve our careful and thoughtful consideration as we craft and implement rules that affect their well-being."

We've rounded up articles and resources from SHRM Online and other trusted media outlets on the news.

Two New Proposals

Through the first Notice of Proposed Rulemaking (NPRM), the DOL wants to withdraw a part of the prior rule that limits the situations in which the DOL can assess monetary penalties against employers for violations. The DOL also wants public input on whether to revise a part of the rule that addresses "managers or supervisors" who may be excluded from sharing in tips.

Through the second NPRM, the DOL wants to further delay the effective date of three parts of the final rule: two parts that address penalties and one provision that addresses how the FLSA's tip-credit rules apply to employees who perform both tipped and nontipped tasks. "The additional eight-month extension would provide the department the opportunity to evaluate additional information about the questions of law, policy and fact raised by these portions of the 2020 Tips final rule," according to the DOL.

(U.S. Department of Labor)

Performing Tipped and Nontipped Duties

The prior administration's rule codified DOL guidance eliminating the 80/20 rule, which allowed employers to take a tip credit only for workers who spent no more than 20 percent of their time on nontipped duties. The rule would more broadly allow employers to take a tip credit when tipped employees perform related side jobs (such as rolling silverware into napkins) either during, just before or a reasonable time after tipped duties. On Jan. 19, eight states and the District of Columbia filed a lawsuit challenging the rule, claiming it will lower wages for tipped workers. The lawsuit claims that the DOL didn't adequately identify and weigh the costs and benefits of eliminating the 80/20 rule and, therefore, the DOL arbitrarily eliminated the rule in violation of the Administrative Procedures Act.

(Jackson Lewis

DOL Seeking Public Comments

The Trump administration's rule would implement changes to the FLSA's tip-credit regulations that were enacted by Congress under the Consolidated Appropriations Act of 2018. The DOL now will accept public comments for 60 days, beginning on March 24, on the proposed changes and delays. "The proposals we announced today ensure that we consider all of the circumstances in today's rapidly changing workplace," Looman said in a March 23 statement.

(Bloomberg Law)

Stricter State Laws May Apply

Employers should note that more-stringent state and local laws may apply to wages received by tipped workers. For example, some states require employers to pay tipped employees a minimum cash wage that is greater than that required by the FLSA. Other states prohibit tip credits altogether. 

(SHRM Online)

DOL Proposes Withdrawal of Additional Rules

The Labor Department is proposing more changes. In addition to revising the tip-sharing rule, the DOL proposed withdrawing the prior administration's independent-contractor and joint-employer final rules. The rules "would significantly weaken protections afforded to American workers under the [FLSA]," the DOL stated.

(SHRM Online)


[To dig deeper on this topic, attend SHRM’s upcoming Foundations of Compensation virtual program.]

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