If you employ “tipped” workers, I have good news and not-so-good news. OK, maybe it’s not really good news, but it’s interesting. The sort of good news is that Congress passed a budget and so the federal government was not shut down. (Yawn– I know). If you’re an employment law nerd like me, you find it interesting that a governmental body famous for gridlock, bickering, politics, and well, getting nothing done not only passed a budget but slipped an employment law in there. Now this wasn’t just any employment law. It was an actual amendment to the Fair Labor Standards Act. Congress hasn’t been able to pass any significant employment laws for a while. So what is this law and how did it happen? To answer the first question, the law changes how you can and can’t deal with employees’ tips. That’s the possibly bad news for employers. You know what’s worse than getting bad news, though? Not getting it and then later finding out you did something illegal and getting in trouble –which means you get worse news. I don’t want that to happen to any of you, so let’s get a good look at the new law on tips–the good (or at least neutral?), the bad, and the ugly.
(image from motherjones.org)
There is actually another piece of good news: You can still take a tip credit. Let’s review. For all of your employees that customarily receive tips you can pay significantly less than minimum wage, ($2.13 an hour to be exact) as long as the employee, after the tips is earning at least minimum wage. (Otherwise you will have to pay the difference). That part has always been pretty clear.
What was not clear however, was whether the FLSA allows tip sharing, either with employees who normally don’t get tips (e.g. dishwashers, cooks, janitors) or with you, the employer. The DOL under the Obama Administration put out a new regulation, allowing tip sharing only among “customer service” employees or those who usually receive tips. In other words, wait staff or hotel housekeepers could not share tips with dishwashers or other “back of the house” employees who generally don’t get tips–or their employers.
The Trump Administration sought to reverse that regulation (you’re not surprised, are you?), thereby allowing employers to require employees to share their tips–with non-tipped employees or even with their employers. Under the DOL’s proposal all employers who paid their employees the full minimum wage(not just the “tipped” minimum for tipped employees) would have been deemed “owners” of all tips those employees received. In fact it looked like that things were headed in that direction, provoking an outcry from many employee advocates.
Then something unusual happened. Congress acted. Yes, you read correctly. Congress acted. It passed a law–one that President Trump had said he would veto. Then something else unusual happened. Trump signed the bill into law. Yes, you read that right, too. Now, you may be wondering, how that happened. Simply put, Congress slipped that law, an amendment to the FLSA, into the 2232-page budget bill that included the new budget and avoided a government shutdown. President Trump clearly felt that fighting the tip sharing rule wasn’t worth a government shutdown.
Here’s what the new law says:
“An employer may not keep tips received by its employees for any purposes, including allowing managers, or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” Further, ‘‘Any person who violates section 3(m)(2)(B) shall be subject to a civil penalty not to exceed $1,100 for each such violation… in addition to being liable to the employee or employees affected for all tips unlawfully kept.”
Basically, this means you don’t own and you can’t take or keep your employees’ tips regardless of whether you pay your employees full minimum wage. The law does however continue to allow tip-sharing between tipped employees and non-tipped employees — if and only if the tipped employees are paid full minimum wage.
Yes, the new law changes the Obama-era rules slightly, and it offers something else that the Obama-era rules did not: the force of law. The Obama-era rules were Department of Labor regulations. What we have now is an amendment to the FLSA itself.
So here’s the bottom line:
- If you have tipped employees, neither you, nor other managers may take or keep an employee’s tips–even if you pay your employees full minimum wage rather than taking a tip credit.
- If you take or keep an employee’s tips, you may not only have to pay back those tips, but you could also be fined $1100 for each time you appropriate someone’s tips. The amounts could add up, so take these prohibitions seriously, or as I have sometimes been known to say, “Don’t get cute”.
- If you take a tip credit, you cannot require your employees to share their tips with other employees that do not usually get tips.
OK, that’s enough tips on tips for now. See you next week.
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