DOL Tries Again to Let Employers Require Tip Sharing Among Employees

Proposed rule would prohibit employers from keeping employees' tips

By Stephen Miller, CEBS and Lisa Nagele-Piazza, J.D., SHRM-SCP October 8, 2019
DOL Tries Again to Let Employers Require Tip Sharing Among Employees

On Oct. 7, the U.S. Department of Labor (DOL) announced a proposed rule about tip sharing under the Fair Labor Standards Act (FLSA).

The proposal would make it easier for employers to require "front-of-the-house" employees—such as servers and bartenders—who earn at least the standard minimum wage and customarily receive tips to share those gratuities with cooks, dishwashers and other "back-of-the-house" workers who aren't usually tipped. It would:

  • Explicitly prohibit employers, managers and supervisors from keeping tips received by employees.
  • Allow employers that do not take an FLSA tip credit to include a broader group of workers, such as cooks or dishwashers, in a mandatory tip pool.
  • Incorporate in the regulations, as provided under the Consolidated Appropriations Act of 2018, new civil penalties that may be imposed when employers unlawfully keep tips. Currently these penalties cannot exceed $1,100.
  • Amend the regulations to reflect recent guidance explaining that an employer may take a tip credit for any amount of time that an employee in a tipped occupation performs related non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing the tipped duties.
  • Withdraw the DOL's previously proposed tip-sharing rule, published Dec. 5, 2017.

The proposal will be subject to public comment for 60 days, after which the DOL will take comments into consideration before issuing a final rule.

Here are SHRM Online resources and news articles from other trusted media outlets. 

Farewell to the 80/20 Rule

While a server's primary role is to take orders for and serve food and drinks, their side work can range from rolling silverware to restocking salad station components. Under existing rules, servers are entitled to direct payment of the full minimum wage from their employers if the side work exceeds 20 percent of their shift time. The proposed regulations would permit a tip credit to be taken regardless of the percentage of servers' time that's spent on other duties, provided the side work is done during, just before or a reasonable time after activities that can earn them gratuities.

The suggested changes would not change the tip-pooling regulations for restaurants that take a tip credit, or count servers' wages as a portion of the minimum wage their servers, bartenders or other customarily tipped workers are due by law. In those instances, only the tipped employees can participate in the pool.

The DOL also stressed that employers would still be forbidden to keep employee tips. The rules propose fines of up to $1,100 for businesses that illegally share in the gratuities.

(Restaurant Business

DOL's Prior Proposal Sparked Heated Debate

The new proposal is similar to one that was announced in December 2017 but failed to move forward. The prior proposal aimed to overturn an Obama-era rule by giving employers the option of requiring certain workers who receive tips to share that money with non-tipped co-workers. While proponents of the rule said it would allow for more wage equity among workers who contribute to the customer experience, critics argued that nothing in the rule prevented employers from forcing workers to hand over tips to managers or keeping gratuities to pay for other business expenses.

(SHRM Online)

Workers May Earn Less Than Minimum Wage

The federal Fair Labor Standards Act (FLSA) allows employers to pay workers less than the standard minimum wage if they customarily receive tips and other certain conditions are met. Employers can take a tip credit by paying servers, bartenders and other tipped workers as little as $2.13 an hour if those workers earn at least the standard minimum wage of $7.25 an hour once their tips are added in. However, if employers claim a tip credit, they can't require tipped workers to share their gratuities with non-tipped workers. So the new rules on tip sharing would apply only to workers who earn the full minimum wage.

(SHRM Online

[SHRM members-only toolkit: Complying with U.S. Wage and Hour Laws and Wage Payment Laws] 

States May Have Different Rules

Employers must check the applicable state laws before paying servers and bartenders a subminimum wage. These states don't allow a tip credit to be taken at all: Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington. This means employers must pay servers in Alaska, for example, at least $9.89 an hour (the state's minimum wage). Several other states permit a tip credit but require that workers be paid a higher cash wage than what is required under federal law. In Arizona, for example, employers must pay tipped workers at least $8 an hour and workers must earn at least $11 an hour (the state's minimum wage) when tips are included.

(U.S. Department of Labor)



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