Do you have tipped employees? Then you should already be aware of an employer’s obligations regarding payment of tips to employees and limitations on tip-pooling arrangements. However, employee protections just got stronger.
On September 24, 2021, the U.S. Department of Labor finalized a revised rule under the Fair Labor Standards Act (FLSA) assessing penalties to employers who cheat employees out of tips. It also provides rules for participation in tip-pooling arrangements. Specifically, the rule modifies several provisions regarding assessment of Civil Monetary Penalties (CMPs) and who may receive tips in certain circumstances. Important provisions include:
- Tipped Employees: Under the previous rule, the Secretary of Labor only assessed CMPs for “repeated or willful” violations of the rule that employers may not keep employee tips for any purpose, including those for managers or supervisors. The new rule broadens protections for employees, giving the Secretary discretion to assess CMPs for any violation of that section, regardless whether it is repeated or willful. The Department of Labor will consider the seriousness of the violation and the size of the business when assessing CMPs.
- Civil Monetary Penalties: The FLSA allows the Department of Labor to assess a penalty of up to $1,100 per violation of the FLSA.
- Willful Violations: The rule inserts language demonstrating that reckless disregard of the FLSA that constitutes a willful violation can be determined “under all the facts and circumstances” of a particular case.
- Managers and Supervisors: Supervisors and managers that earn tips can contribute to tip-pooling arrangements but cannot receive tips from those pools. They can keep tips only when received from customers for service that the manager or supervisor directly and solely provided.
The DOL’s final rule will take effect on November 23, 2021. Employers are encouraged to review and update their tip policies accordingly. The experienced attorneys in Mansour Gavin’s Employment Group can help review your current policies to ensure that you are in compliance with federal and state wage and hour laws. Please reach out to a Labor or Employment attorney with any questions or for further clarification.