New Department of Labor Rule Exposes Employers to Civil Penalties for Pocketing Workers’ Tips

The Fair Labor Standards Act prohibits employers from pocketing workers’ tips. On Sept. 23, the Department of Labor finalized a rule that permits the agency to fine employers that retain tips intended for workers, such as bartenders and servers.

Under the finalized rule, employers face a fine of up to $1,100 per violation, in addition to remaining liable to workers for the amount withheld. The civil penalty is intended to incentivize employers to comply with their legal responsibilities and act as an enforcement mechanism when they do not.

While the rule strengthens protections for workers, it also increases the circumstances in which employers may be fined. Previously, the proposed regulation authorized civil penalties only when employer violations were “repeated and willful.”

The rule also explains that, while supervisors and managers who receive tips may contribute to tip pools, they cannot receive tips from such pools. Rather, supervisors and managers are only permitted to keep tips that they receive directly from customers, for services the manager or supervisor “solely” provided. The addition of the word “solely” is intended to prevent supervisors and managers from receiving tips for merely assisting workers who regularly rely on tips.

The rule is set to take effect on Nov. 23.