The Tip Income Protection Act of 2018 (“the Act”) was signed into law on March 23, 2018 as part of the omnibus spending bill. The Act, buried in the 2,323 pages of the bill, amends the Fair Labor Standards Act (FLSA) and rolls back the Department of Labor’s 2011 regulation on tip pools.
The Act allows for employees who do not customarily receive tips to participate in tip pools, where the employer does not take a tip credit. The “employees” referred to in this act also include the back of the house employees like busboys, chefs, line cooks, and janitors. The Act makes it very clear that tips belong to the employees, and not employers, stating:
An employer “may not keep tips received by its employees for any purpose including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.”
This strict prohibition against managers, supervisors and employers collecting or retaining tips made by employees is critical in light of the increased penalties under the Act.
While the Act does not affect tip-credit provisions spelled out in Section 203(m) of the Fair Labor Standards Act, it does affect tip pools when an employer is not taking a tip-credit allowing all types of employees to participate in a tip pool. This provision of the Act is contrary to the limitations on tip pool participants in Section 203(m).
Old Tip Pooling Rules
- The tip pool provisions in Section 203(m) restrict tip pools to employees who “customarily and regularly” receive tips, leaving out back of the house employees like bussers, cooks, chefs.
- Penalties for tip pool violations include unpaid wages and liquidated damages in the same amount.
New Tip Pooling Rules
- Employees who customarily do not receive tips can participate in a tip pool, when the employer is paying the full minimum wage and is not taking a tip credit. However, managers, supervisors, and employers cannot collect or retain tips made by employees.
- Penalties for tip pool violations increased to include the amount of tip credit taken, amount of wages withheld, and liquidated damages in the same amount. Additionally, the Secretary of Labor may impose civil penalties of $1,100 per violation.
We will be closely monitoring developments on this topic, especially, in cases where managers and supervisors participate in a tip pool. The Act’s language is broad, prohibiting “managers and supervisors.” However, the question left for employers is: ”Will courts draw a distinction between upper level management and lower level supervisors?”
Restaurants commonly use tip-credit and tip pooling arrangements, and must be careful not to violate the FLSA. Also, state law can provide stricter restrictions on these arrangements than the FLSA. We encourage employers considering these arrangements to contact legal counsel.