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The Issues Surrounding the New Tip Credit Requirements

New regulations took effect in May, 2011 regarding tip credits and tip pools.   The U.S. Department of Labor amended some details of the Fair Labor Standards Act on Tip Credits, which touched three important issues :  (1) the ownership of employee tips; (2) the arrangements for tip pooling; and (3) the notifications that employers are required to provide to their tipped employees.

The sudden rule change caught the restaurant industry off-guard.   The amendment was announced April 5th, and the regulations took effect May 5th, without the usual commenting period that the department normally allows before regulations take effect.  The industry’s major trade groups quickly took action by first requesting a meeting with the DOL and then appealing for a 90-day delay in the implementation of the final rule.  But as it turned out, the DOL declined the appeal, which prompted the National Restaurant Association, the Council of State Restaurant Associations and the National Federation of Independent Business to sue the U.S. Department of Labor .

The trade groups asserted their stand that the new regulations came at a very inopportune time, since U.S. restaurants are still dealing with the sluggish economy, and rising costs of commodities.

The DOL, on the other hand, countered that enough time had already been provided since the original release of the original regulations in 2008.  And that these new rules were brought about because of many alleged violations and costly litigation in recent years.

As the rest of the restaurant industry awaits the result of the lawsuit, the law takes effect – businesses found in non-compliance face stiff civil penalties.  As the scene unfolds, restaurant operators are still required to comply with the law, and are now compelled to take necessary actions to bring their tip credit and tip pooling policies into compliance with the new regulations.

In light of these events, we have come out with a few helpful resources to enlighten restaurant operators on the nuts and bolts of the new regulations on tip credits and tip pooling:

Hopefully this helps unravel the web of confusion among this new regulation and allows restaurant owners to deal with the issues at hand.