American Payroll Association (APA) Basic Guide to Payroll, 2013 Edition
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In a Field Assistance Bulletin issued February 29, 2012, Wage and Hour Division Deputy Administrator Nancy Leppink advises regional offices that new regulations addressing ownership of employee tips under Fair Labor Standards Act (FLSA) Sec. 3(m) should be enforced uniformly across the country, including in states covered by the Ninth Circuit. The new regulations, effective May 5, 2011, incorporated the Division’s longstanding position that tips are the property of the employee, and that an employer can use its employees’ tips only in the limited ways prescribed by Sec. 3(m), even when the employer has not taken a tip credit against its minimum wage obligations.
In a 2010 decision (Cumbie v Woody Woo, Inc), the Ninth Circuit ruled that the text of Sec. 3(m) itself does not impose any restrictions on an employer’s use of its employees’ tips when the employer has not taken a tip credit. The court concluded that where nothing in the text of the FLSA purports to restrict employee tip-pooling arrangements when no tip credit is taken, we perceive no statutory impediment to Woo’s practice The employer in Woo was prohibited by state law from taking a tip credit, and paid its employees the full minimum wage, but required its tipped employees to participate in a tip pool that included dishwashers and cooks, individuals who do not "customarily and regularly receive tips” under the terms of the statute.
In the response to the court's position, the Division reiterates that nothing in Woo, which addressed the regulatory scheme as it existed at the time of the decision, precludes the agency from filling the gap left by the FLSA’s silence on the use of employees’ tips when no tip credit is taken with its legislative rules promulgated pursuant to specific congressional authorization and after notice and comment. The Bulletin also concludes that because these gap-filling rules are legislative, they have the force of law, and are “binding upon all persons, and on the courts, to the same extent as a congressional statute .“
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