The DOL's Revised Regulations Warrant Caution for Employers Taking Tip Credits - Effective 5 May 2011
By: Dan Calvert, President
June 6, 2011
On April 5, 2011, the Department of Labor Wage and Hour Division presented finalized changes to several Fair Labor Standards Act regulations. The division initially published its proposed regulations in July 2008, and then allowed public comments on the rules for 60 days. Finally, the division published the regulations April 2011 and the new directives went into effect 30 days later on May 5, 2011. This time, the division provided no opportunity for public comments. The revised regulations greatly affect Employers who take advantage of the Tip Credit Provision to meet the minimum wage payment requirements.
IMPORTANT REVISED REGULATIONS FOR "TIP CREDIT PROVISION" EMPLOYERS: The main issue is the requirements around the notice required to be given to the tipped employee. The original 2008 proposal would not have changed the regulations concerning tip credit notice:
"Pursuant to section 3(m), an employer is not eligible to take the tip credit unless it has informed its employees that it intends to avail itself of the tip wage credit. Such notice shall be provided in advance of the employer's use of the tip credit; the notice need not be in writing, but must communicate to employees that the employer intends to treat tips as satisfying part of the employer's minimum wage obligation."
This proposal, while stating that written notice may be given to the employee, did not indicate a requirement to meet the burden of proof that the notice was given.
However, the Final Rule (29 C.F.R. sections 531.54 and 531.59(b)) now amends the regulations by requiring several new notice requirements, that were not mentioned in the original 2008 proposal stating that employers must comply with in advance of taking the tip credit. While DOL continues to allow under the Final Rule for the notice to be oral or in written form, in its preamble discussion to the Final Rule DOL strongly encourages the employer to provide notice in writing in order to establish, if challenged, that the proper notice was actually given. Moreover, the changes to the notice requirements appear to require additional notice obligations of any required tip pool contributions for those employers who require directly tipped employees to contribute to a tip pool.
In the proposed language, the Wage and Hour Division adds new requirements. Under the final rule, an employer is required to "inform" its employees that it intends to use the tip credit, but must also inform the tipped employees (before it utilizes the tip credit) of the following:
- the direct cash wage the employer is paying a tipped employee;
- the additional amount the employer is using as a credit against tips received, which cannot exceed the difference between the minimum wage and the actual cash wage paid by the employer to the employee;
- the additional amount claimed by the employer on account of tips as the tip credit must not exceed the value of the tips actually received by the employee;
- the tip credit shall not apply to any tipped employee unless the employee has been informed of the tip credit provisions; and
- that all tips received by the tipped employee must be retained by the employee except for the pooling of tips among employees who customarily and regularly receive tips.
There is no requirement for employers to provide written notification of these terms to their employees, but the Division notes that "employers may wish to do so, since a physical document would, if the notice is adequate, permit employers to document that they have met" these requirements.
In another significant development for employers with tipped employees, the final rule clarifies that there is no limitation on the maximum amount an employer may require an employee to contribute to a tip pool. However, employers must notify employees of tip pool contribution amounts, limit the use of a tip credit to the amount of tips the employee ultimately receives, and "may not retain any of the employees' tips for any other purpose."
Should you have any questions regarding proper notice to your employees under the new regulations contact the Achilles Group.