Congress Amends FLSA to Bar Employers from Keeping Workers’ Tips

Congress Amends FLSA to Bar Employers from Keeping Workers’ Tips

When the US Department of Labor proposed a new rule in December concerning the treatment of tips under the Fair Labor Standards Act, the proposal drew fire from critics who said it effectively permitted employers such as restaurants to withhold their employees tips. The regulation, which would only apply to employers who pay a full minimum wage and do not take a tip credit, would allow these employers to require that tips be pooled and shared with back-of-house staff who do not traditionally receive direct tips, such as restaurant cooks and dishwashers—a practice banned by the Obama administration.

A stipulation in the regulation that managers could use pooled tip money to make structural improvements, like expanding the dining area, or to lower menu prices, led employee advocates to argue that it would result in many tips not accruing to employees at all. The Labor Department publicly contended that these fears were baseless, but last month, an internal analysis of the proposal’s impact came to light, showing that employees could indeed lose out on billions of dollars in tips. Senior officials in the department shelved the analysis and ordered staff to revise their methodology to produce a more favorable result. The revelation cast doubt on the future of the rule and led to calls from members of Congress to discard it and warnings from state attorneys general that the department may have broken the law in rolling out the proposal.

The rule is still pending, but now, if it does come into effect, it will do so with its critics’ main objection addressed.

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Tip-Pooling Rule Under Fire Over Shelved Impact Analysis

Tip-Pooling Rule Under Fire Over Shelved Impact Analysis

In December, the US Department of Labor proposed a change to regulations under the Fair Labor Standards Act that would permit employers of tipped workers who pay the minimum wage and do not claim a tip credit to require these workers to “shar[e] tips through a tip pool with employees who do not traditionally receive direct tips–such as restaurant cooks and dish washers.” Critics of the proposed rule say it would hurt employees by allowing restaurant managers to skim tips or even conceivably not distribute the tip pool to workers at all.

New revelations have handed ammunition to these critics and thrown the future of the tip-pooling rule into doubt. Last week, Bloomberg Law‘s Ben Penn reported that the Labor Department had shelved an internal analysis of the proposal’s impact that found employees would lose billions of dollars in tips. Senior officials in the department ordered staff to revise the methodology of their analysis to produce a more favorable result, Penn adds, and later calculations showed smaller losses. Ultimately, the White House allowed the Labor Department to publish the proposal without including any estimate of its economic transfer effects.

Opponents of the rule change have leapt on this story as a reason to scuttle the proposal. Massachusetts Senator Elizabeth Warren sent a sternly-worded letter to Secretary of Labor Alexander Acosta requesting copies of all analyses the department conducted on the rule and correspondence pertaining to them, as well as urging the secretary to delay the end of a public notice-and-comment period that was to end Monday, February 5 (he did not). In addition, 17 state attorneys general wrote to the Labor Department, pushing for the proposal to be withdrawn, the Hill reported:

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Labor Department Proposes New Tip Pooling Rule

Labor Department Proposes New Tip Pooling Rule

The US Department of Labor this week announced a proposed change to regulations under the Fair Labor Standards Act concerning tipped employees and employers’ right to demand that they pool their tips. The proposed new rule, according to the department’s press release, “applies where employers pay a full minimum wage and do not take a tip credit and allows sharing tips through a tip pool with employees who do not traditionally receive direct tips–such as restaurant cooks and dish washers.”

Notice of the proposed rule was published in the Federal Register on Tuesday, and will be available for public comment for 30 days. If enacted, the rule change would benefit restaurants, which have come under increasing pressure to pay their tipped employees the standard minimum wage and thus forego the tip credit, making more of them subject to these regulations, Lisa Nagele-Piazza explains at SHRM:

“Restaurants and other food service providers should welcome these proposed changes,” said Kathleen Anderson, an attorney with Barnes & Thornburg in Fort Wayne, Ind., and Columbus, Ohio. “Think about it. The restaurant experience is created by the combined efforts of the front and back of the house. Tip sharing allows those in the back of the house to be rewarded for good service.” …

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