Certain New FLSA Tip Regulations Go Into Effect

Effective April 30, 2021, the Department of Labor (DOL) implemented some of its new standards for tipped employees under the Fair Labor Standards Act (the Rule). However, the DOL decided to delay the implementation of other sections of the Rule (regarding tip credits for employees who perform both tipped and non-tipped duties), signaling the DOL’s desire to return to its prior guidance under the Obama Administration.

Under the Rule, tipped employees may pool tips with non-tipped employees as long as the employer does not take a tip credit. For example, restaurant servers may pool tips with cooks and dishwashers, but managers and supervisors cannot keep tips received by employees under any circumstances. The Rule defines “managers” and “supervisors” to be those individuals who satisfy the “duties” requirement, but not the salary basis requirement, under the FLSA’s executive exemption. Here, a manager or supervisor must have as their primary duty the managing of the enterprise or a department or subdivision of the enterprise; must customarily and regularly direct the work of at least two employees; and must have the authority to hire or fire, or their suggestions and recommendations as to the hiring, firing or changing the status of other employees must be given particular weight. 

Employers must follow new recordkeeping requirements as well when paying out tips. Specifically, the employer must:

1. Preserve or maintain records identifying each employee who receives tips;
2. Have records containing the weekly or monthly amount of tips received for each employee, as reported by the employee to the employer; and
3. Have records delineating the hours worked in each workday where the employee received tips and where the employee did not receive tips.

Three specific sections were delayed that would: (1) limit civil money penalties for “repeated” or “willful” violations; (2) amend the regulations that address when a violation of the FLSA is “willful”; and (3) amend “dual jobs” regulations. The effective date of those portions has been delayed until December 31, 2021. The DOL will complete its review of these sections of the Rule prior to that date and may issue a new rule addressing those issues.

DOL guidance on this topic is complex and subject to change. If you have questions about this or any other workforce issue, please contact your relationship attorney or one of Honigman’s Labor & Employment attorneys.