Tips on Rules under the Fair Labor Standards Act

Summary:  The U.S. Department of Labor (DOL) has issued two Final Rules addressing requirements for proper practices with tipped employees and tip pools.  Restaurants which take a “tip credit” can expect ongoing legal scrutiny of their tipping practices and procedures by the DOL and private attorneys.

Tip Pooling and the Role of Managers and Supervisors

The Fair Labor Standards Act (FLSA) still prohibits employers from keeping any of its employees’ tips.

Under the FLSA, supervisors and managers may not receive tips from mandatory tip pools or tip-sharing arrangements.  This legal requirement applies regardless of whether an employer takes a “tip credit” or the compensation structure for managers and supervisors.

New Rule Change

However, a recent DOL final rule acknowledges some circumstances where managers and supervisors may receive tips directly in a manner that does not violate the FLSA’s prohibition against keeping employee tips.

Specifically, the rule provides that:

• A supervisor or manager may only keep tips based on a service the supervisor or manager “directly” and “solely” provides.

For example, a manager/supervisor works a shift as a bartender and individually was taking orders and making drinks for customers sitting at the bar.  In this scenario, the manager/supervisor could keep tips received from customers sitting at the bar that the manager/supervisor was serving because the manager/supervisor “directly” and “solely” serviced those customers by working alone.

However, if a manager/supervisor were helping deliver food to tables that were also being served by a server, the manager/supervisor could not keep any of the tips left by those customers because the manager/supervisor was not “solely” providing services to those customers.

Giveth but not Taketh

A restaurant could require that the manager contribute such individual tips to a tip pool, but the manager still could not receive tips distributed from such a mandatory tip pool or other tip sharing arrangement.

Who is a Manager or Supervisor?

For purposes of the DOL final rule, a “manager” or “supervisor” is an employee:

• Whose primary duty is the management of the establishment where they are employed.
• Who regularly and customarily directs the work of two or more other employees.
• With the power to hire or fire other employees or whose recommendations and suggestions for hiring, firing, advancement, and promotion are given particular weight by their employer.

Tip Credits and “Dual Jobs”

Another new final rule from the DOL addresses limits on when an employer can take a tip credit for the time a tipped employee spends performing non-tip-producing work.

The new “Tips Dual Jobs” final rule establishes reasonable limits on the amount of tip credit an employer can take when a tipped worker isn’t doing tip-producing work.  The rule clarifies that an employer may take a tip credit only when an employee is performing tip-producing work or performing work that directly supports work that is tip-producing for a limited amount of time.

Specifically, an employer can take a tip credit only for the time a worker spends performing tip-producing work or when:

• A tipped employee spends less than 20 percent of the hours they work during a workweek performing work that directly supports tip-producing work.  Therefore, an employer cannot take a tip credit for any time that exceeds 20 percent of the workweek.

• A tipped employee performs directly supporting work for not more than 30 minutes.  Therefore, an employer cannot take a tip credit for any time that exceeds 30 minutes.

Important Definitions in the Final Rule

The Final Rule defines tip-producing work to include “all aspects of the work performed by a tipped employee when they are providing service to customers” and for which they are receiving tips.

The Final Rule defines directly-supporting work as “work either performed in preparation of or [that] otherwise assists the tip-producing customer service work,” adding that directly-supporting work “is the kind of work that is generally more foreseeable to employers and that employers are more likely to specifically assign.”

Servers and Bussers

Examples of directly-supporting work for servers and bussers during customer hours would include those activities commonly performed before or after table service, such as rolling silverware, setting tables, and stocking the busser station; refilling salt and pepper shakers and ketchup bottles.

Bartenders

Examples of directly-supporting work for bartenders during customer hours typically would include wiping down the surface of the bar and tables in the bar area where customers are sitting; cleaning bar glasses and implements used to make drinks for those customers; slicing and pitting fruit for drinks. If you have any questions about these Final Rules, tip credit compliance, or any other wage and hour question, please consult the Summers Compton Wells attorney(s) with whom you regularly work.