Newly Signed Federal Budget Bill Includes Prohibition Against Tip Retention By Employers

Among the provisions of the recently-passed 2,232-page federal budget bill, signed by President Trump on March 23, 2018, is an amendment to the Fair Labor Standards Act (FLSA) affecting employers with tipped employees.  The amendment to the FLSA provides that an employer “may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.”  The amendment also allows tip sharing between tipped and non-tipped employees, as long as the employer pays full minimum wage (rather than the tipped minimum) to its employees.

The amendment upholds part of Obama-era Department of Labor rules that restricted owners and managers from collecting or retaining tips earned by employees.  Unlike those rules, however, it provides that if employees are paid full minimum wage, tipped employees such as servers and bartenders may share their tips with non-tipped employees such as cooks and dishwashers.  It also nullifies the Department of Labor’s late 2017 proposed rule which would have permitted tip sharing and would not have prohibited members of management or employers from retaining employee tips.

The amendment also provides for civil penalties not to exceed $1,100 for each violation, and provides for employer liability to employees for all tips unlawfully retained, and the sum of any tip credit taken by the employer, as well as liquidated damages.

Employers with tipped employees should end any practice of collecting and retaining or redistributing tips.  As long as employees are paid federal minimum wage and the employer does not take a tip credit, tipped employees may split tips with non-supervisory, non-tipped employees.  If employees are paid the tipped wage ($2.13/hour), and the employer takes a tip credit ($5.12/hour), tip splitting is not permitted.

The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters for over sixty years, and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.

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Michelle practices in all areas of labor and employment law, with an emphasis on employment litigation at the Federal level.