DOL’s Proposed Rule on Tip Regulations Under the FLSA
The Fair Labor Standards Act of 1938 (FLSA) established minimum wage and pay standards for employees working in the private sector and in federal, state, and local governments. Since its enactment, the FLSA has undergone several changes. The most recent update to the law came through the Consolidated Appropriations Act of 2018 (CAA), in which Congress addressed the issue of employee tips and the treatment of “tipped employees.” Congress made it clear that employers, managers, and supervisors are not allowed to keep any portion of the tips earned by their employees. Congress also suspended parts of the 2011 Department of Labor (DOL) rule (76 FR 18832) that prohibited certain employers from establishing a mandatory tip pool. The CAA, however, did not provide further guidance on the regulation of tips. Congress left the task up to the DOL, which previously had attempted to regulate tip pooling through a proposed rulemaking in December 2017.
In response, the DOL issued a new proposal on tip regulations (84 FR 53956) on Oct. 8, 2019. The new proposal would withdraw the 2017 proposal and clarify the circumstances under which employers may establish a mandatory tip pool.
The DOL’s proposed changes to tip-pooling regulations would only apply to those employers who pay their tipped employees the full federal minimum wage. Under the FLSA, the current full minimum wage is $7.25 per hour. But employers are permitted to pay tipped employees at the subminimum wage rate of $2.13 per hour, so long as their tips put their hourly rate over the federal minimum wage of $7.25.
Under the proposal, employers who pay their tipped employees the full minimum wage would be allowed to set up a mandatory tip pool, in which tipped employees would be forced to share their tips with coworkers who aren’t usually tipped for the work that they do. These “back-of-the-house” workers often include dishwashers, bussers, and cooks. Employers, managers, and supervisors would not be allowed to participate in the tip pool and may not claim any portion of the tips for themselves. The new proposed rule also would change the way employers pay tipped employees when they perform non-tipped duties. Currently, tipped employees who are paid $2.13 per hour must be paid the full minimum wage when doing any non-tipped duties that take up more than 20% of their time. This is known as the 80/20 rule.
The DOL’s proposal would eliminate the 80/20 rule and allow employers to pay the subminimum wage of $2.13 per hour for all non-tipped work, so long as the work is “contemporaneous with, or [done] within a reasonable time immediately before or after” tipped work. The DOL says this set of proposed changes to tip regulations would give “employers greater flexibility in determining pay practices for tipped and non-tipped workers … and allow for a reduction in wage disparities among employees who all contribute to the customers’ experience.” The National Restaurant Association was quick to offer its support, thanking the DOL for “providing much-needed regulatory clarity” and putting an end to “arbitary and capricous regulations.”
But some are unhappy with the proposal. Rep. Bob- by Scott (D-Va.), chairman of the House Education and Labor Committee, worries that the proposed rule would empower “bad-faith employers to take advantage of their employees.” Sen. Patty Murray (D-Wash.), ranking member of the Senate Committee on Health, Education, Labor and Pensions, said the “proposed rule seems to betray the compromise language Congress put into law just last year—instead it has the clear goal of allowing employers to steal employees’ tips and to pay their workers less.”
The National Employment Law Project (NELP) also has come out against the proposed rule. Judy Conti, director of government affairs at NELP, expressed concern that eliminating the 80/20 rule would allow “employers to take advantage of tipped workers and have them perform excessive amounts of non-tip-generating work while being paid only $2.13 per hour.”
Concerns over tipped workers being potentially underpaid for doing non-tipped work would be alleviated if Congress enacted the Raise the Wage Act (H.R. 582), according to Scott. The bill, which the House passed in July 2019, would get rid of the subminimum wage standard completely. But so far, the Republican-controlled Senate has shown little interest in taking up the legislation.
The DOL’s proposal on tip regulations is subject to a 60-day public comment period, ending Dec. 9, 2019. The DOL then may refine the proposal to address any public concerns and preempt possible legal challenges to the rule. For more background, see the May 2013 issue of Congressional Digest on “Raising the Minimum Wage.”
