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You may include more employees in a tip pool


The 80/20 rule is history

Effective March 1, 2021, employers in service industries, like restaurants, bars, salons, etc., may let more employees (like cooks and dishwashers) be in tip pools.

The change came from a Department of Labor (DOL) final rule amending the tipped employee regulations under the federal Fair Labor Standards Act (FLSA). The rule was published in late December.

Key changes in the final rule include the following:

  • Employers that pay the full minimum wage and do not take a tip credit* may now include a broader group of workers in a mandatory tip pool.
  • Employers may not keep employees’ tips.
  • Managers/supervisors may keep tips they get from customers for services only they provide.
  • The “80/20” rule has been eliminated. Generally, employers may take a tip credit for all work (tipped or non-tipped).
  • Employers that don’t take a tip credit but have a tip pool have new recordkeeping rules to follow.
  • If a city/state has a standard that’s more protective for employees than the FLSA, an employer in those locations must follow the higher standard.

You may take a tip credit for any hours that an employee performs related, non-tipped duties at the same time they perform their tipped duties, or for a reasonable time immediately before or after performing the tipped duties.

The rule incorporates a new recordkeeping requirement if you do not take a tip credit but collect employees’ tips to operate a mandatory tip pool. This must include a symbol, letter, or other notation placed on the pay records identifying each employee who receives tips.

You must also keep records of the weekly or monthly amount of tips received by each employee, as reported by the employee (this may consist of reports from the employees to the employer on IRS Form 4070).

With employers having more flexibility regarding pay, back-of-house employees who are newly added to a tip pool may see a bump in pay.

Allowing more workers into a tip pool might also help reduce wage disparity among all workers involved in providing a good customer experience.

Key to remember: Time to review your tip pooling policy if you wish to make changes in relation to this new rule.