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Tip-Pooling Expansion on the Horizon

On December 5, 2017 by Schnader in Labor and Employment

By Samantha Banks

The U.S. Department of Labor (DOL) has proposed to roll back regulations enacted in 2011 that limited tip-pooling arrangements under the Fair Labor Standards Act (FLSA). The proposed rule was published December 5 in the Federal Register.

The 2011 regulations restricted employers’ tip pool distributions when employers paid full minimum wage to all employees. The 2011 regulations prompted litigation by the National Restaurant Association, which argued that the DOL had overstepped its authority and created a pay disparity in restaurants between the front and back of the house. The Ninth Circuit Court of Appeals upheld the DOL regulations; the Restaurant Association’s challenge is pending in the U.S. Supreme Court. Given the new DOL proposal, the Supreme Court may dismiss the case before it.

Under the new proposal, employers would be permitted to include in a tip pool traditionally non-tipped employees earning minimum wage. Under the FLSA, employers may pay tipped employees an hourly rate of $2.13 so long as the hourly wage and tips at least total the current $7.25 hourly minimum wage and employers meet other conditions.

The proposal, however, would apply only where employers pay the full minimum wage and do not take a tip credit against their minimum wage obligations. Under the proposal, employees who do not traditionally receive tip distributions, such as cooks, dishwashers, and other lower wage job classifications, could receive tip pool distributions.

The proposed rule has broad implications for restaurants, bars, and other service industry employers whose workers receive tips. It is also noteworthy that many states have laws and regulations regarding tip pooling and minimum wage. The DOL proposal has no impact on those laws and regulations.

Comments must be received no later by January 4, 2018. Comments may be submitted here.


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