DOL Seeks to End 2020 With Possible Clarity on Tip Pooling

Think that tips have to stay with front-of-house staff?

Well, it may be time to think again.

On December 22, 2020, the Department of Labor (DOL) issued a final rule allowing employers who do not take a tip credit against their minimum wage obligations to implement mandatory tip pools in which employees who traditionally have not been able to participate in tip pools—such as cooks and dishwashers—may now receive a portion of the tips left by guests.  However, employers, managers, and supervisors still cannot participate in the tip pool, regardless of whether the employer takes a tip credit. 

An employer that wishes to use a mandatory, nontraditional tip pool will be subject to certain recordkeeping requirements.  The employer must:

1. Preserve or maintain records identifying each employee who receives tips; and
2. Have records containing the weekly or monthly amount of tips received for each employee, as reported by the employee to the employer.

The employer is required to pay out the tip pool no later than the regular payday for the workweek in which the tips were collected, or, if the pay period covers more than a single workweek, the regular payday for the period in which the workweek ends. 

The rule, which is effective on March 1, 2021, also provides that an employer can take a tip credit for an employee who performs related, non-tipped duties contemporaneously with the employee’s tipped duties, or for a reasonable time immediately before or after performing the tipped duties.  For example, a server who notices that the kitchen is running low on coffee and makes a fresh batch in between customer interactions would still qualify for a tip credit.  But employers should be careful regarding what will qualify as a “reasonable time” before or after such interactions—requiring servers to perform too much “non-tipped” work may disqualify the employer from taking a the tip credit for their work.

This final rule comes after several years of notice and comment rulemaking, as we’ve reported on in the past.  While the new rule gives flexibility for tip pooling arrangements for certain employers, those employers wanting to implement a tip pool that includes chefs, cooks, dishwashers, and other back-of-the-house staff should carefully review the rule and their practices to comply with the law and all recordkeeping requirements.  Furthermore, state and local laws may affect an employer’s ability to implement the nontraditional tip pool outlined by the DOL.  Finally, with a change in administration, it is possible that the incoming Secretary of Labor could seek to rescind this new rule.  Therefore, employers should continue to monitor this situation and consult with their employment counsel.

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