DOL Proposes Amended Tip Pool Regulations

On October 8, 2019, the Department of Labor (DOL) published a Notice of Proposed Rule Making (NPRM) proposing amendments to tip pool regulations interpreting the Fair Labor Standards Act (FLSA). These proposed amendments are important to many Nevada employers using tip pools.

As we previously reported, in 2018 Congress amended Section 3(m) of the FLSA with the Consolidated Appropriations Act (CAA) – a development that has brought several changes to Nevada’s tip pool scene. This law imposed a new restriction on tip pools – supervisors and managers are not permitted to participate in a tip pool used by any employer. This law also nullified the DOL’s prior position that employers who do not take tip credits cannot use mixed tip pools (i.e., tip pools which include both tipped and non-tipped employees). Even though Nevada does not allow tip credits, the DOL has traditionally upheld its prohibition against mixed tip pools for all employers, regardless of whether a tip credit is taken.

The DOL now seeks to amend its tip pool regulations to reflect and interpret this new law. Fortunately for Nevada employers, the DOL is proposing to remove the portions of its regulations that prohibited mixed tip pools for employers who do not take a tip credit. The DOL also proposes to amend its regulations to include the new statutory language prohibiting an employer from keeping employees’ tips, and to clarify that an employer may exert control over employees’ tips only to distribute tips to the employee who received them, require employees to share tips with other eligible employees, or, where the employer facilitates tip pooling by collecting and redistributing employees’ tips, distribute tips to employees in a tip pool.

As to the exclusion of supervisors and managers from tip pools, the DOL proposes to use the duties test for the FLSA’s executive employee exemption to determine who is a supervisor or manager. The DOL does not propose use of the salary requirements of the exemption to determine whether an employee is a manager or supervisor; as such, the proposed regulation would interpret the terms “manager” and “supervisor” under Section 3(m) more broadly than the executive employee overtime exemption. If this proposed regulation is adopted, an employee would not be able to participate in a tip pool if his/her primary duty is managing the enterprise or a customarily recognized department or subdivision of the enterprise, he/she customarily and regularly directs the work of at least two or more other full-time employees or their equivalent, and he/she has the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees are given particular weight.

It is important to note that the regulations at issue are currently only proposals. The DOL will accept public comments on the proposed regulations until December 9, 2019. We will update you once final regulations are adopted. In the meantime, if you have questions about tip pools, please contact a KZA attorney.

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