Recent DOL Guidance on Supervisor Tips and Employee Volunteers Under the FLSA
Executive Summary
The U.S. Department of Labor’s Wage and Hour Division (WHD) continues to refine and enforce guidance on two issues of importance to employers: the FLSA prohibition on managers and supervisors retaining employee tips and the limits on employee volunteer arrangements. This Client Alert summarizes recent DOL guidance, rulemaking, and judicial developments affecting compliance.
KEY TAKEAWAYS
Supervisors and managers are prohibited from retaining tips from tip pools under any circumstances.
“Manager” and “supervisor” status is determined by duties, not titles (29 CFR § 541.100(a)(2)–(4)).
WHD Opinion Letter FLSA2025-03 emphasizes a duties-based analysis for tip pool eligibility.
Private-sector employers generally cannot accept volunteer labor—even if employees wish to “volunteer.”
The new IRC § 224 “No Tax on Tips” deduction does not extend to managers receiving tips in a managerial capacity.
Supervisor Tips Under the FLSA
Statutory and Regulatory Framework
FLSA Section 3(m)(2)(B) (29 U.S.C. § 203(m)(2)(B)) prohibits employers from keeping employees’ tips for any purpose, including allowing managers or supervisors to keep any portion, whether or not the employer takes a tip credit.
Penalties can include repayment of any tip credit and tips unlawfully retained, an equal amount in liquidated damages, and civil money penalties of up to $1,100 per violation under Sections 16(b), 16(c), and 16(e)(2) (29 U.S.C. § 216).
The implementing regulations at 29 CFR § 531.52(b)(2) define a “manager” or “supervisor” by reference to the executive duties described in 29 CFR § 541.100(a)(2)–(4) and § 541.101. The test is a duties-based test, not a title-based test.
A manager or supervisor may keep tips received directly from customers only when the tip is based on service the manager or supervisor directly and solely provides.
Tip Pooling Rules (29 CFR § 531.54)
The tip pooling regulations draw a clear line:
Employers taking a tip credit: May not allow managers and supervisors to receive tips from the tip pool. (29 CFR § 531.54(c)(3).)
Employers not taking a tip credit: May implement nontraditional tip pools that include back-of-house workers (e.g., cooks, dishwashers), but still may not allow supervisors and managers to receive tips from the pool. (29 CFR § 531.54(d).)
Important nuance: Managers and supervisors are not prohibited from contributing their own tips to eligible employees in mandatory tip pools.
WHD Opinion Letter FLSA2025-03 (September 30, 2025)
In Opinion Letter FLSA2025-03 (September 30, 2025), the WHD concluded that front-of-house oyster shuckers qualified as tipped employees eligible to participate in a tip pool because they had meaningful customer interaction and performed service-related work, including explaining options, answering questions, making suggestions, and preparing oysters in view of customers. The opinion reinforces that tip-pool eligibility turns on actual duties and customer interaction, not job title or location.
Judicial Application: Green v. Perry’s Restaurants Ltd.
In Green v. Perry’s Restaurants Ltd. (D. Colo., Feb. 3, 2026), the court relied on FLSA2025-03 to hold that tip-pool eligibility depends on actual duties and customer interaction, not labels or location. Because the AM Employees—bussers, hosts, and server assistants—worked pre-opening shifts without customers present, the court found their inclusion in the tip pool problematic.
Dual Jobs Rule Developments
After the Fifth Circuit vacated the 2021 Dual Jobs Rule in Restaurant Law Center v. U.S. DOL (Oct. 29, 2024), the DOL reinstated the original 1967 dual jobs regulation at 29 CFR § 531.56(e) through a technical amendment (89 FR 101884, Dec. 17, 2024). Under that rule, an employee may perform “dual jobs” (such as maintenance work and waiting tables), but an employer may take a tip credit only for hours worked in the tipped occupation. The vacated 20% workweek and 30-minute limits for directly supporting work no longer apply, so employers should review practices for employees performing both tipped and non-tipped duties.
“No Tax on Tips” — IRC § 224
The One Big Beautiful Bill Act, effective July 4, 2025, added IRC § 224, which permits an income tax deduction for “qualified tips” of up to $25,000 per year, subject to phaseouts at $150,000/$300,000 AGI. Final IRS regulations (TD 10044, effective June 12, 2026) identify occupations that customarily and regularly receive tips. Restaurant managers are not qualifying occupations, so tips received in a managerial capacity are not “qualified tips”; the regulations’ reference to WHD Opinion Letter FLSA2025-03 underscores the connection between the DOL’s tip rules and the tax deduction.
Employee Volunteers Under the FLSA
Statutory Framework: The Public-Agency Exception
FLSA Section 3(e)(4)(A)–(B) (29 U.S.C. § 203(e)(4)) excludes individuals performing volunteer services for state and local government agencies from “employee” status during those hours, subject to conditions. The exception applies only to public agencies; the FLSA provides no general volunteer exemption for private-sector employers.
Regulatory Framework (29 CFR Part 553, Subpart B)
The implementing regulations set forth the following requirements for valid volunteer arrangements:
Voluntary nature: Service must be for civic, charitable, or humanitarian reasons, without a promise, expectation, or receipt of compensation and without direct or implied pressure or coercion.
No same-type services: An individual employed by the same public agency may not volunteer for the same type of services.
Private individuals: Individuals not employed by a public agency may volunteer for any type of service.
Permissible benefits: Volunteers may receive expense reimbursement, reasonable benefits, or nominal fees without losing volunteer status.
Private-Sector Limitations: The “Suffer or Permit” Standard
For private-sector employers, the FLSA’s “suffer or permit to work” standard means that hours an employer knows or has reason to know an employee is working—including “voluntary” work—must be compensated. Private, for-profit employers generally cannot accept volunteer services from their own employees.
This limitation has significant implications for several common employer scenarios:
Nonprofit organizations: Nonprofits that employ individuals generally cannot accept unpaid volunteer work from those employees for the same type of services.
Exempt employee activities: “Voluntary” activities serving the employer’s interests may be compensable work, even for exempt employees.
Corporate charitable initiatives: Employee volunteer programs should genuinely benefit a third-party charity, not the employer.
Recommended Employer Action Items
Tip Compliance
Audit supervisor classifications and tip pools. Apply the duties-based test to individuals participating in or retaining tips; confirm that no managers or supervisors receive tip-pool distributions, regardless of tip credit, and update written policies. Titles alone are not determinative.
Review direct-service and dual-job practices. Where supervisors retain tips for direct customer service, confirm the service was “solely” provided by the supervisor; also review tip-credit practices for employees performing both tipped and non-tipped duties, because the 20% and 30-minute limits no longer apply.
Explain the “No Tax on Tips” deduction. Communicate that IRC § 224 applies only to “qualified tips” in qualifying occupations; tips managers receive in a managerial capacity do not qualify.
Volunteer Compliance
Apply the public/private distinction. Use the FLSA volunteer exception only for qualifying public-agency service; public agencies should confirm that service is freely offered, not the same type as the employee’s paid work, and that any benefits or fees are reasonable and nominal.
Audit private volunteer programs and classifications. Review corporate social-responsibility, company-event, and off-the-clock programs for uncompensated work, and document worker-classification decisions as DOL standards evolve.
Conclusion
The DOL’s recent guidance underscores that tip compliance turns on employees’ actual duties and customer interaction, while private-sector employers generally may not accept unpaid work from their employees. Employers should periodically review tip-pool policies, supervisor classifications, and unpaid-activity programs as the regulatory landscape evolves.
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