The CAA prohibits employers from keeping tips received by their employees, regardless of whether the employer takes a credit for tips earned by workers toward its minimum wage obligation to those employees under the FLSA (a “tip credit”). It also prohibits employers from allowing managers or supervisors to keep any portion of employees’ tips.

Clarity on this issue benefits employers and workers throughout food service industries. The final rule also largely codifies the Department’s guidance regarding an employer’s ability to claim the tip credit when workers perform both tipped and non-tipped duties, clarifying when employers can continue to claim the tip credit while the employee performs duties that do not generate tips. The guidance clarifies which non-tipped duties are considered related to a tip-producing occupation.

The CAA did not affect longstanding regulations that apply to employers that take a tip credit under the FLSA. For example, employers that claim a tip credit must ensure that a mandatory “traditional” tip pool includes only workers who customarily and regularly receive tips. For example, this means that employees such as cooks or dishwashers cannot be part of such a tip pool. However, the CAA removed the regulatory restrictions on an employer’s ability to require tip pooling when it does not take a tip credit; those employers may now implement mandatory, “nontraditional” tip pools, which can include employees such as cooks and dishwashers.

This final rule is effective sixty days after publication in the Federal Register. More information about the final rule is available at the final rule website.