On September 24, 2021, the U.S. Department of Labor (DOL) issued a new final rule strengthening the enforcement provisions of existing regulations concerning tipped employees. While various regulations relating to tipped employees are still in a state of flux-as we've previously noted here-the new rule imposes hefty penalties for violations of these regulations. Accordingly, businesses with tipped workers will need to ensure they are complying with applicable regulations to avoid these newly-stiffened penalties.
The Fair Labor Standards Act (FLSA) prohibits employers from retaining employee tips and from allowing managers or supervisors to participate in tip pools. Existing DOL regulations allow employers to take a tip credit against the employer's federal minimum wage obligation and to institute tip pools where tips are shared among workers who "customarily and regularly receive tips."
The DOL's new rule provides for harsher penalties for violations of these requirements that will be imposed more quickly. An employer who violates tip regulations will be subject to civil penalties of up to $1,100 per violation, plus any back wages owed. And the rule rejects a more forgiving approach proposed by the Trump administration under which civil penalties would only apply in the case of "repeated and willful" violations. Instead, employers will be subject to civil penalties "as the Secretary determines appropriate"-meaning that even unintentional, one-off mistakes may lead to liability.
The new rule will take effect on November 23, 2021. Additional regulations relating to tipped employees are expected by the end of December. With the DOL's move toward stricter enforcement of tip regulations and ongoing changes in the content of those regulations, businesses with tipped employees would be well-advised to pay close attention and ensure that they are in compliance with all applicable regulations.
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