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DOL Expanding Ability to Fine Employers for Keeping Workers’ Tips

Taking effect on November 23, 2021, a new policy from the U.S. Department of Labor (DOL) clarifies existing tip credit laws of the Fair Labor Standards Act.

Presently, employers are required under federal law to pay a minimum wage of $7.25. For tipped workers, part of this may be covered through a “tip credit” that goes towards making up the minimum wage based on received tips. 

The agency will have the power to fine employers $1,100 for each individual violation—plus back wages owed—if the employers retain any portion of employee tips. The move shows the DOL’s interest in prioritizing the income of tipped workers, and showing operators that they are willing to enforce such policies aggressively. The final rule also re-defines manager guidelines for participation in tips, permitting managers and supervisors to contribute to mandatory tip pools while clarifying that they may keep tips received for service “directly” and “solely” provided. Managers may not participate in tip pools but can contribute if required by the establishment. 

Legal publication JD Supra recommends employers of tipped employees to “carefully evaluate their procedures to ensure that they are not retaining any portion of their employee’s tips. Employers should also educate their managers and supervisors regarding the circumstances under which they are permitted to retain tips they receive from customers. Failure to do so could result in hefty penalties.”

The jury is still out on three portions of the Tip Regulations Final Rule section of the Fair Labor Standards Act: two concern the DOL’s power to apply civil money penalties, the third on the 80/20 rule. Under the proposed revision of the 80/20 rule, expected to be addressed by December 21, 2021, employees who spend up to 20% of their time on non-tipped tasks are still eligible for tip credits. 

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