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Congressional Budget Bill Changes Restaurant Tip Rules

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Are you employed by a restaurant, diner, or any other sort of eatery at which you receive tips regularly from patrons? The Congressional budget bill passed in late March 2018 included an unexpected legislative note that effectively shakes up how you can receive tips and regular wages that you are going to want to know about. In short, the new rules say employers and supervisors to keep employee tips, but it also changed tip pooling rules under certain circumstances. To get a full idea of what happened and why, it helps to begin with a quick review of tip legislation history in the country.

Minimum Wage & Tip Credits

The Fair Labor Standards Act (FLSA) has established the federal minimum wage at $7.25 an hour while also establishing a “tip credit” rule. Employers can legally reduce hourly wages to just $2.83 an hour so long as the employee affected by the reduction regularly receives tips. Restaurant owners benefitted greatly from this rule by saving them significantly on employee wages, propped up by the assumption that customers and patrons would tip enough per hour to bring that employee back to the federal minimum. However, tip pools could not include non-tipped workers, like a hostess who only works the front podium, or the cooks.

Circuit Courts Decision Compared to DOL

In the 2010 case of Cumbie v. Woody Woo, a restaurant paid employees at least $7.25 an hour – the federal minimum wage – and it also shared the entire tip pool with all workers, including kitchen staff. The servers who were actually handed tips from patrons sued, trying to say the tip pooling rule was violated. The case eventually made it to the Ninth Circuit Court of Appeals, which held the restaurant was in the right since it did not use the tip credit rule to reduce employee wages.

The ruling did not sit idly for long. In 2011, the Department of Labor (DOL) made new regulations that effectively undid the Ninth Circuit Decision. The new rule barred kitchen workers and management from ever collecting portions of pooled tips, even if every server and tipped worker was paid at least the federal minimum wage. The DOL regulation was challenged by a trade association but would stand up to the criticism and resulting lawsuit, becoming the accepted rule – until the Trump Administration.

Tipped Employees Bill of 2018

Knowing what the established rule was before, it is easier to see the implications and impacts of the 2018 changes brought in the Omnibus Budget Bill.

The six biggest changes to tipped worker wage rules are:

  • The 2011 regulation is entirely rescinded and replaced by new rules.
  • Kitchen staff can be part of a tip pool as long as the staff member is not part of management, employees are paid at least minimum wage, and the restaurant owners do not use tip credits.
  • Managers, supervisors, and owners are blocked from receiving shared tips.
  • Restaurant owners found to be taking portions of tips can be ordered to pay any wages lost due to tip credits and the amount of tips wrongfully collected by the owners or management staff.
  • Double-damages can be used to penalize restaurant owners under certain circumstances.
  • Additional $1,100 penalty fine can be used per violation.

When everything is said and done, employers are essentially blocked from keeping tips but employees can once again be forced to share their tip pool with workers who do not usually receive tips. Ultimately, this could make it more difficult for restaurant servers to maintain a livable wage, especially in businesses with more non-wait staff than wait staff.

Do you have more questions or concerns about the 2018 changes and how it impacts you as a restaurant worker? Do you suspect your employer is committing wage violations, either intentionally or inadvertently? You can talk to a Memphis employment law attorney from Donati Law, PLLC and discuss what is going on. During an initial consultation, we can help define your rights and determine if you have valid grounds for filing an employment law claim or lawsuit. Contact us today to begin.

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