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The DOL 2020 Tip Final Rule: Guidance for Paying Your Tipped Employees

On April 30, 2021, portions of the 2020 Tip Final Rule became effective. There has been a lot of back and forth from the DOL with respect to its issuance and delay of this rule. This article will clarify what was included and delayed from the final rule and what employers need to be aware of with respect to paying tipped employees.

Effective Portions of the 2020 Tip Final Rule

The now effective 2020 Tip Final Rule consists of guidance on the keeping of tips and tip pooling, recordkeeping, and some other minor technical changes.

First, employers are prohibited from keeping tips received by their employees, regardless of whether the employer takes a tip credit under the FLSA. Similarly, managers and supervisors are prohibited from keeping employees’ tips or participating in a tip pool. The new rule also allows employers that pay tipped employees at least the full FLSA minimum wage and do not claim a tip credit to include workers, but not managers or supervisors, who do not customarily or regularly receive tips in a mandatory “nontraditional” tip pool. This would apply to positions such as cooks or dishwashers. An employer that collects tips to facilitate a mandatory tip pool must fully redistribute the tips no less often than when it pays wages to avoid “keep[ing]” the tips in violation of the regulations. Finally, the rule maintains the requirement that Employers that take a tip credit under the FLSA only implement a required tip pool composed of only those employees in occupations that customarily and regularly receive tips (for example, servers and bussers).

In addition, the rule added a new recordkeeping requirement. With respect to employees who receive tips but for whom a tip credit is not taken, any employer that collects tips received by employees to operate a mandatory tip-pooling or tip-sharing arrangement must maintain and preserve records containing tipped employees’ names, addresses, dates of birth, days of the week their workweek starts; hours worked each workday, total daily or weekly straight-time earnings, overtime premiums, additions or deductions from wages, total wages each pay period and the dates paid. The employer must also place a symbol, letter, or other notation on the pay records identifying each employee who receives tips maintain records on the weekly or monthly amount reported by the employee, to the employer, of tips received (this may consist of reports made by the employees to the employer on IRS Form 4070).

Delayed Portions of the 2020 Tip Final Rule

On April 28, 2021, the Department announced a final rule (Partial Delay final rule) delaying the effective date of three portions of the 2020 Tip final rule for eight months, until December 31, 2021. These three delayed portions are related to the assessment of civil money penalties under the FLSA and the application of the FLSA tip credit to tipped employees who perform tipped and non-tipped duties (dual jobs). In the interim, the DOL is seeking comments on whether to revise one other portion of the 2020 Tip final rule addressing “managers and supervisors” who cannot keep employee’s tips. It also asks how the Department might improve the recordkeeping requirements outlined in the 2020 Tip final rule in future rulemaking. If your business wants to weigh in, you can submit comments to the DOL through May 24, 2021.


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