Lipsky Lowe LLP discusses the new tip rules under the Fair Labor Standards Act.

New Tip Rules on the Horizon

By Douglas Lipsky

The U.S. Department of Labor (DOL) recently announced a proposed rule concerning tip provisions under the federal Fair Labor Standards Act (FLSA). This rule applies to employers in the hospitality and restaurant sectors where wage theft has long been a pervasive problem. If you believe your employer has taken improper tip credits, you should consult an experienced employment law attorney.

What is the effect of the new tip rule?

In short, the proposed rule would permit employers who do not take tip credits to pool tips between employees who receive tips and earn the full minimum wage and workers who do not traditionally receive tips (e.g. dishwashers and cooks). 

The proposed rule does not impact employers who take a tip credit toward their minimum wage obligations, however. That tip credit is equal to the difference between the required cash wage and the federal minimum wage; however, employers utilizing such a tip credit scheme may only have a tip pool among traditionally tipped employees (e.g restaurant servers and bartenders).  

The DOL has also proposed revisions to the FLSA’s “dual-job” regulation by permitting employers to take a tip credit for time an employee in a tipped role performs related non-tipped work along with tipped duties. To do so, workers must perform nontipped duties contemporaneously with tipped duties (or within a reasonable time immediately before or after). The new rule will be open for comment for 60 days after it is published in the Federal Register.

Why This Matters

Although proponents of the new tip rule believe it will provide for wage equity among workers in the hospitality industry, critics believe the new rule will not prevent wage theft, which typically involves unpaid overtime and tip violations. Examples include:

  • Paying less than the minimum wage
  • Refusing to pay overtime pay
  • Failing to give workers breaks
  • Requiring employees to work off-the-clock

Tipped workers are especially vulnerable in establishments that are required to manage differential payments; however, errors and miscalculations often result in employees not being paid for their work. In addition, improper tip pooling can result in employees working more hours than what they are actually paid for, while some employers may skim workers’ tips and keep a portion for the business. 

Regardless of the impact of the new tip rule, it takes a skilled employment law attorney to protect workers in the restaurant industry from wage theft.

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.