Overtime and Tips – Being Revisited Again

Overtime and Tips – Being Revisited Again

by Birchwood Payroll Aug 11, 2018

The Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs posted its Agency Rule List for spring including two rules affecting overtime calculations under the Fair Labor Standard Act (FLSA) and one aligning the tip credit regulations.


Standard salary level for “white collar” exemption. The DOL intends to issue a Notice of Proposed Rulemaking (NPRM) in January 2019 to determine the salary level and other areas of the FLSA exemption for executive, administrative and professional employees.  The DOL will be reviewing comments and interested parties can submit a request for information

Regular Rate of Pay.

Under the FLSA, employers must pay covered employees at least one-and-one-half times their regular rate of pay for hours worked in excess of 40 hours per workweek. This rule has been much discussed for decades, but hasn’t yet reached full clarity as to what the ‘regular rate of pay’ should be in a changing work environment. There is much speculation and discussion that one possible solution would be to create several levels of pay structure and exemptions for different classes of workers.


The tip provisions in the Consolidated Appropriations Act prohibit employers from keeping employees’  tips.  This rule is under review because the 217 proposed rule did not define which non-tipped employees could participate in a tip pool.

Who is a Tipped Employee?

The FLSA defines a tipped employee as an employee who customarily and regularly receives more than $30 per month in tips. Typically, this includes employees like servers, bartenders, and bussers.

For the Tip Credit to apply, the employer must pay a cash wage of at least $2.13 per hour and the employee must be allowed to retain all tips received except for those tips subject to a valid tip pool.  The tip pool involves sharing a portion of tips received during the course of a shift between all tipped employees. Additionally, the tip pool where sharing a portion of the tips to non-tipped employees – such as cooks and line dishwashers, will not qualify as a valid tip pool.

The new Tip Income Protection Act of 2018 signed by President Trump on March 23, 2018 provides much needed clarity by prohibiting managers and supervisors from retaining employee tips, thereby excluding them from a tip pool. Employers will be subject to liquidated damages for keeping tips, along with a $1,000 civil penalty per violation. The law also repeals portions of the regulation, issued by the DOL in 2011, which prohibited employers from requiring tipped employees to participate in a tip pool with non-tipped employees, if the employer did not take a tip credit and the employees were paid at least the applicable minimum wage. This leaves the door open for the DOL to propose a rule allowing employers to require tipped employees receiving the full minimum wage to share their tips with non-tipped employees who are not managers or supervisors.


These are only two of the 49 key actions that the DOL put into its agenda for the year.  Some of the reason for the backlog is that the DOL is still waiting for its head position to be filled by President Trump. In the meantime, there will be more review and discussion until a final verdict can be made by a newly seated Director.

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