Tip Regulations under the Fair Labor Standards Act (FLSA)

In 2020 and 2021, the Department completed a series of rulemakings to update its regulations to protect tipped workers. These rulemakings addressed 2018 legislative amendments to section 3(m) and other sections of the Fair Labor Standards Act (FLSA) to expressly prohibit employers, including managers and supervisors, from keeping employees’ tips. The rulemakings also updated the Department’s “dual jobs” regulations addressing the circumstances under which an employer can take a partial credit against its minimum wage obligations based on the tips received by employees.

The current regulations were adopted through the following three rulemakings:

1. The Department published a final rule, “Tip Regulations Under the Fair Labor Standards Act (FLSA)” (2020 Tip final rule), on December 30, 2020, (See 85 FR 86756). The parts of this rule which became effective on April 30, 2021 provide:

• an employer cannot keep employees’ tips under any circumstances; managers and supervisors also may not keep tips received by employees, including through tip pools;
• an employer that pays the full minimum wage and takes no tip credit may allow employees who are not tipped employees (for example, cooks and dishwashers) to participate in the tip pool;
• an employer that collects tips to facilitate a mandatory tip pool generally must fully redistribute the tips within the pay period; and,
• employers that do not take a tip credit, but collect employees’ tips to operate a mandatory tip pool, must maintain and preserve payroll or other records containing information on each employee who receive tips and the weekly or monthly amount reported by the employee, to the employer, of tips received.

2. The Department issued a final rule on September 24, 2021 (see 86 FR 52973) (Civil Money Penalty (CMP) final rule), which withdrew and modified two portions of the 2020 Tip final rule related to the assessment of CMPs; the CMP final rule also modified provisions of the 2020 Tip final rule addressing managers and supervisors. Under the CMP final rule, which became effective on November 23, 2021, the Department:

• restored its ability to assess CMPs against employers who violate the FLSA by taking tips earned by their employees, regardless of whether those violations are repeated or willful;
• adopted the same rules, procedures, and amount considerations for CMPs for keeping tips as it applies to other FLSA CMPs;
• addressed when minimum wage or overtime violations of the FLSA are considered “willful” and thus subject to a CMP assessment;

• clarified that while managers or supervisors may not receive tips from tip pools, managers and supervisors are not prohibited from contributing to mandatory tip pools; and,
• clarified that managers and supervisors may only keep tips that they receive from customers directly for services that the manager or supervisor directly and “solely” provides.

3. On October 29, 2021, the Department issued the Dual Jobs final rule, which withdrew and modified the dual jobs portion of the 2020 Tip final rule. (See 86 FR 60114). This final rule, which became effective on December 28, 2021:

• clarified that an employer may take a tip credit only when an employee is performing work that is part of a tipped occupation and may not take a tip credit for any time spent on work that is not part of a tipped occupation;
• defined work that is part of the tipped occupation as work that produces tips, as well as work that directly supports work that produces tips, provided that the directly supporting work is not performed for a substantial amount of time;
• clarified that tip-producing work encompasses any work performed by a tipped employee that provides service to customers for which the tipped employee receives tips and that directly supporting work is work that is performed in preparation of or otherwise assists tip-producing work; and,
• provided that an employee has performed non-tipped, directly supporting work for a substantial amount of time if the employee’s directly supporting work exceeds (1) 20 percent of hours worked of that part of the workweek in which the employee is engaged in a tipped occupation or (2) a continuous period of 30 minutes.

Additional Procedural Background

The Department published its 2020 Tip final rule on December 30, 2020, which was scheduled to go into effect on March 1, 2021. The 2020 Tip final rule, among other changes, addressed the 2018 legislative amendments to the FLSA and revised the Department’s dual jobs regulation. (See 85 FR 86756).

However, the Department delayed the effective date of the portions of the 2020 Tip final rule addressing 1) CMPs for keeping tips and 2) dual jobs, plus 3) another portion addressing when other FLSA violations are willful, in order to reconsider issues of law and policy raised by these portions of the rule. (See 86 FR 22597). The other provisions of the 2020 Tip final rule—those provisions addressing the 2018 legislative changes to tips and tip pooling in section 3(m) and related recordkeeping requirements—went into effect on April 30, 2021.

As noted above, the CMP final rule, issued on September 24, 2021, withdrew and modified the two portions of the 2020 Tip final rule related to the assessment of CMPs; it also modified regulatory provisions addressing managers and supervisors. (See 86 FR 52973). The Dual jobs final rule, published on October 29, 2021, withdrew and modified the dual jobs portion of the 2020 Tip final rule. (See 86 FR 60114).

Additional Information