Latest DOL Final Rule Levies Penalties on Employee Tip Withholding

On September 23rd, 2021, the U.S. Department of Labor (DOL) announced a new final rule on employee tip withholding. Generally, the rule restores the DOL’s ability to assess civil penalties against employers who take tips earned by their employees. Markedly, the rule states this is a violation no matter if the action is willful or repeated. Additionally, the rule modifies the DOL’s broader civil money penalties regulations addressing willful violations. Furthermore, the rule aligns the latest employee tip withholding regulations with applicable precedent on how the department litigates willfulness. Finally, the rule allows managers and supervisors to contribute to valid tip pooling arrangements without receiving tips themselves. Earlier this month, the DOL announced the postponement of the March 2020 joint employer final rule.

An Overview of the Final Rule

Following the rule’s publication, the DOL has withdrawn the provisions of the civil money penalties in a 2020 final rule. That earlier rule addressed the keeping of tips and tip pooling and recordkeeping requirements and was effective April 30th, 2021. In short, previously, the DOL could assess penalties for violations only when employers kept employees’ tips repeatedly or willfully. However, the Consolidated Appropriations Act of 2018 allows illegal employee tip withholding penalties – regardless of designated “repeated” or “willful” violations. Subsequently, the latest tipped worker final rule follows that exact line of thinking. The final rule also clarifies that managers and supervisors may not receive tips from mandatory tip pools or tip-sharing arrangements. Managers or supervisors may, however, contribute to mandatory tip pools or sharing arrangements. Finally, the rule clarifies when a manager or supervisor may keep tips. In summary, those roles can only keep tips when received directly for a service a manager or supervisor “solely” provides. In conclusion, the new final rule does not address the amount that tipped workers will make. The rule only addresses the concept of employee tip withholding. Presently, under the Fair Labor Standards Act, employers can pay tipped workers $2.13 per hour in direct wages. Additionally, employers can take a credit against employee tips earned to meet the federal minimum wage of $7.25 per hour.