New DOL Rule Expands Tip Pooling to Non-Tipped Workers

By Douglas Lipsky

On Dec. 22, 2020, the U.S. Department of Labor issued its Final Rule addressing which employees can legally participate in tip pooling under the Fair Labor Standards Act (FLSA). 

The rule rolls back an Obama-era regulation that barred tip pooling with back-of-house workers and establishes regulations to enact a Congressional amendment to the FLSA in 2018. 

While the new rule is intended to provide clarity and flexibility for employers, it may have little effect on wage violations in the restaurant industry. The best way for servers and other hospitality workers to protect their rights is to consult with an experienced employment lawyer. 

New Wage Rules for Hospitality Workers

The long-anticipated rule by the DOL’s Wage and Hour Division allows restaurants to pool server’s tips and distribute them to non-tipped workers, such as cooks and dishwashers, as long as the employer pays tipped workers the minimum wage or greater rather than taking a tip credit. 

Under the FLSA (and New York Labor Law) employers in the hospitality sector are permitted to pay tipped employees less than the minimum wage as long as they reach the minimum wage threshold through tips; this is referred to as a tip credit.

The rule makes it clear that employers are barred from keeping any tips or sharing them with supervisors or managers, however. The Final Rule also eliminates the so-called 80/20 rule, which required employers to pay workers the higher regular minimum wage for non-tipped tasks (e.g. setting tables, making coffee) if such tasks took up more than 20 percent of a worker’s time.

The new rule allows employers to take a tip credit when nontipped tasks are performed contemporaneously or immediately before or after workers’ primary, tipped duties, regardless of how much time they take.

The DOL believes the new rule will support tipped-employee compensation, provide increased certainty to tipped workers, and increase pay for back-of-the-house workers previously excluded from tip pools. On the other hand, critics contend that most tipped workers will not see a pay increase and that allowing tipped workers to perform nontipped tasks will drastically reduce their wages and could result in fewer nontipped jobs.

Why This Matters

Wage violations are common in the hospitality industry and typically involve unpaid overtime and tip violations. At this juncture, it remains unclear if the DOL’s final rule will either reduce wage disparities or eliminate wage theft. Whether you are a server or a back-of-the-house worker, it takes an experienced wage and hour attorney to protect your rights.

About the Author
Douglas Lipsky is a co-founding partner of Lipsky Lowe LLP. He has extensive experience in all areas of employment law, including discrimination, sexual harassment, hostile work environment, retaliation, wrongful discharge, breach of contract, unpaid overtime, and unpaid tips. He also represents clients in complex wage and hour claims, including collective actions under the federal Fair Labor Standards Act and class actions under the laws of many different states. If you have questions about this article, contact Douglas today.