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Employment Law Alert

April 18, 2011

 The Department of Labor (DOL) Has Revised The Rules Regarding Tips

Ownership of Tips and Tip Pooling– The DOL now takes the position in its regulations that tips belong to the employee even where the employer does not  rely on the tip credit (in other words, where the employer pays the full minimum wage).  The DOL explicitly acknowledges that at least one Federal appellate court (the 9th Circuit) has reached the opposite conclusion on this issue, holding that if the employer pays full minimum wage tips do not belong to the employee.  Unless you are in the 9th Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, or Washington) – until this issue is resolved by the Supreme Court, the safest course is to apply the DOL regulation.  As a reminder, the DOL still permits tip pooling – but requires that all members of the tip pool be employees who customarily receive tips.  And most managers are not permitted to share in the tip pool.

No Limit on “Tip Outs” – The DOL had taken the position in opinion letters that there was a cap on the amount a tipped employee could be forced to contribute to a tip pool (15% of tips received or 2% of daily gross sales).  The DOL has now amended its regulations to take the opposite approach, stating that there is no maximum contribution percentage.

Notice of Tip Credit Provision– The revised regulations also provide clarity on what notice the employer must provide to employees in order to claim the tip credit.  Specifically, employers must now inform employees, in advance of taking the tip credit, that the employer is using the tip credit of section 203(m) of the FLSA, and must include the following information:

·        the amount of the cash wage that is to be paid by the employer to the tipped employee;

·        the amount of tips which will be credited as wages toward the minimum wage requirement (a maximum of $5.12 per hour, not to exceed the value of tips actually received);

·        that all tips received by the employee must be retained by the employee except for tips contributed to a valid tip pool limited to employees who customarily and regularly receive tips;

·        any required tip pool contribution amount; and

·        that the tip credit shall not apply to any employee who has not been informed of the requirements of section 203(m).

The DOL does not require that the notice be in writing– but the safest course is to provide written notice in order to document compliance with the regulation.

The contents of this Alert are for informational purposes only, and do not constitute legal advice. If you have any questions about this Alert, please contact a member of the Shulman Rogers Employment and Labor Law Group or the Shulman Rogers attorney with whom you regularly work.


Gregory D. Grant

Meredith “Merry” Campbell