When paying certain nonexempt tipped employees, an employer has the option under the so-called “tip credit” provision in the Fair Labor Standards Act (FLSA) to count customers’ tips toward the employer’s obligation to pay the FLSA-mandated minimum wage.
In 2011, the Obama Administration’s Department of Labor (DOL), which enforces the FLSA through the agency’s Wage and Hour Division (WHD), revised the FLSA regulations to state that tips are the “property of the employee,” and prohibiting employers from using an employee’s tips for any reason other than as a tip credit or in furtherance of a valid tip pool.
The change codified a long-standing WHD interpretation and did not receive significant attention at the time. Since then, however, the issue has been the subject of litigation and now two federal appeals court rulings that differ on whether the interpretation is valid.
In the meantime, the Trump Administration’s DOL announced in its first semi-annual regulatory agenda published a few weeks ago that it now intends to rescind the 2011 revision regarding the tip rule, and plans to publish a formal Notice of Proposed Rulemaking (NPRM) sometime in the near future to that end. In addition, and without any public notice, DOL has added notes to several guidance documents stating that the agency is no longer enforcing the 2011 change to the tip rule. Keep in mind, however, that because the FLSA allows for a private right of action, employers who do not follow the tip rule may be subject to liability in court as long as the rule remains in place.
Members of the Center for Workplace Compliance (CWC) can read more here.