On December 22, 2020 the Department of Labor unveiled a final rule that will put into place a large swath of changes that will affect tipped employees across the country. One of the most troubling changes that will take effect is that employers will now be able to claim a tip credit on back of the house staff, which means that employees who are not traditionally and customarily tipped will now be able to participate in tip pools. This means that cooks, janitors and other traditionally non-tipped employees will be able to claim a portion of the tips that front of the house employees receive. Fortunately, this change will not be extended to managerial staff, who will still be unable to participate in the tip pool. At the moment, this new rule change is set to take effect 60 days after December 12, 2020. 

Generally speaking the FLSA mandates that employers must pay their employees a minimum of $7.25 an hour for the work they perform. Among the various exemptions and loopholes that are found within the FLSA is an employer’s ability to claim a “tip credit” on certain tipped employees. When an employer elects to take a tip credit it allows them to pay the selected employees only $2.13 an hour so long as those employees still make a minimum of $7.25 an hour when the tips they have received are taken into consideration. Moreover, an employer is able to pool together all of the tips earned in a night and disperse it among the tipped employees. This is called a “tip pool.”

It is important to note that in the event that the total amount of compensation falls below an average of $7.25 an hour, even when the tips are taken into consideration, the employer must pay the employee the difference between the amount earned and $7.25 an hour. For example, if the total compensation for the hours worked, with tips included, is an average of $7.00 an hour for an employee who the employer claims a tip credit on, the employer must pay the employee an extra $.25 an hour on top of the $2.13 so that they wages do not fall below the federally mandated minimum wage. 

Under the previous Department of Labor rules, employers were able to only claim a tip credit on certain employees. Specifically, the Department of Labor has had a long-held policy that only employees that customarily and regularly receive tips can participate in the tip pool. These traditionally tipped employees include, but are not limited to, waiters, waitresses, bellhops, bussers, and service bartenders. On the other hand, employers were not allowed to claim a tip credit on managerial staff and “back of the house” employees such as dishwashers, cooks, chefs, and janitors. Consequently, these employees were not allowed to participate in the tip pool. A failure to adhere to this rule would have resulted in the employer losing the ability to claim a tip credit. This in turn meant that the employer would open themselves up to the possibility of being liable for unpaid wages to their employees. 

In a statement Cheryl Stanton, the Wage an Hour Administrator at the Department of Labor, stated that the purpose of this change was to “reduce wage disparities among all workers who contributed to the customers’ experience.” Unfortunately, the most likely outcome of this change will be an overall reduction in the total wages that waiters, waitresses, bussers, and service bartenders receive because they will have to share their tips receive with other staff that are not contributing to the tip pool. This argument is furthered bolstered by the fact that neither the federally mandated minimum wage nor the tip credit rate of $2.13 will be raised under the rule change. 

This change is one of the many changes the Department of Labor has been unveiling in the last few months. If you feel like your employer is not paying you adequately, it is important to consult with a trained legal professional that specializes in employment law. This is especially true since this is a rapidly changing part of the law. Contact us today to set up a consultation.