Obama rule on pooling restaurant tips may soon end

WASHINGTON (WCBD) — An Obama-era rule that bans employers from pooling workers’ tips may soon come to an end.

The Labor Department announced plans on Monday, December 4 to issue a proposed rule to change the Fair Labor Standards Act regulation and allow employers to pool the tips of workers who make full minimum wage and share them with non-tipped workers.

The Department’s proposal only applies where employers pay a full minimum wage and do not take a tip credit and allows sharing tips through a tip pool with employees who do not traditionally receive direct tips – such as restaurant cooks and dishwashers. These “back of the house” employees contribute to the overall customer experience but may receive less compensation than their traditionally tipped co-workers. The proposal would not affect current rules applicable to employers that claim a tip credit under the FLSA.

The Department of Labor promulgated tip regulations in 2011 that restricted this option. Since 2011, there has been a significant amount of litigation involving the tip pooling and tip retention practices of employers that pay a direct cash wage of at least the federal minimum wage and do not claim a FLSA tip credit. There has also been litigation directly challenging the Department’s authority to promulgate the provisions of the 2011 regulations that restrict sharing of tips.

Moreover, in the past several years, several states have changed their laws to require employers to pay tipped employees a direct cash wage that is at least the federal minimum wage. This means that fewer employers can take the FLSA tip credit. The Department’s proposed new rule follows these developments, along with serious concerns that it incorrectly construed the statute when promulgating the 2011 regulations.

The public will have 30 days to comment on the proposed rule once it’s published in the Federal Register.