2018 Budget Limits Tip Pooling

On March 23 2018, President Trump signed into law the 2018 federal appropriations bill which included an addition to the Fair Labor Standards Act (FLSA) stating that “[a]n employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.”  The amendment nullifies regulations issued by the Department of Labor in 2011, including regulations which prohibited an employer from using an employee’s tips as part of an invalid tip pool even where the employer was paying the employees the full minimum wage without utilizing a tip credit.

The effect of nullifying the 2011 regulations is to allow non-tipped employees to share in an otherwise valid tip pool if the employer is paying full minimum wage without using the tip credit to satisfy that obligation.  If the employer utilizes the tip credit to satisfy minimum wage, then only employees “who customarily and regularly receive tips” can participate in a tip pool.  Under the new law, the employer, including managers and supervisors, cannot keep any portion of an employee’s tips regardless of whether the employer is utilizing the tip credit.  The terms “managers” and “supervisors” are undefined in the statute, leaving new questions.  We expect, at some time in the near future, the Department of Labor will issue regulations regarding the meaning of managers and supervisors.

Additionally, the new amendment adds new penalties for employers who keep tips.  Employers are now subject to a civil penalty of up to $1,100 per violation.  Employers will also be liable in the amount of any tips taken from the employees.