Department of Labor proposes new rule promoting tip sharing

The United States Department of Labor recently proposed a new rule that would allow employers to redistribute tips among more employees. We're going to take a look at this new proposal and what it could mean for restaurants and other employers of workers that regularly earn tipped wages.

The new proposal

The DOL recently announced a Notice of Proposed Rulemaking (NPRM) regarding the tip regulations under the Fair Labor Standards Act (FLSA).  Under the proposed rule, workplaces would have the freedom to allow sharing of tips among more employees.  The proposal would help decrease wage disparities between tipped and non-tipped workers – an option that is currently restricted by a rule promulgated in 2011 that has been challenged in a number of courts.

Only for minimum wage earners

The proposal only applies where employers pay a full minimum wage and do not take a tip credit. For example, the current minimum wage in New York is $10.50 per hour for businesses with 10 or fewer employees, but hospitality workers whose earnings depend heavily on tips can earn an hourly rate from their employers as low as $7.35. This new proposal only affects employees that earn at least the traditional minimum wage, not the minimum wage for tipped workers.

This would allow sharing of tips through a tip pool with employees who do not traditionally receive direct tips – such as restaurant cooks and dish washers. According to the DOL, these “back of the house” employees contribute to the overall customer experience, but may receive less compensation than their traditionally tipped co-workers.  The proposal would not affect current rules applicable to employers that claim a tip credit under the FLSA. 

Next steps

Here are some best practices for employers:

• Read about the proposed rule change (here's a fact sheet from the Department of Labor).
• Be prepared to answer questions from employees that ask.
• Follow the updates regularly, so you'll be prepared if/when it happens.

If you want some more help on this matter, get in touch with Complete Payroll, or check out our free PDF, Payroll for Restaurants, that helps restaurant owners and their employees with all the critical elements of recording tips, reporting tips and other matters that impact payroll and taxes.

You can also check out our comprehensive resource page on Payroll for Restaurants, which explains all of the essential components and considerations along with links to government forms, helpful articles and other resources.