WWYLD – 4/10/18 – The DOL’s New Approach for Tip Pooling

Just a few days ago, the Department of Labor (“DOL”) issued a bulletin that speaks to the DOL’s changed position with regard tip pooling.  As readers with tipped employees know, tip pooling is the practice of sharing tips amongst employees.

Historically, the Fair Labor Standards Act (“FLSA”) stated that tip pooling was only permissible if:

  • Employees were paid below minimum wage; and
  • Employers claimed a tip credit; and
  • The tips were distributed only to “customarily and regularly” tipped employees

But, in July of 2017, the DOL indicated that it would not enforce its regulations prohibiting tip pooling amongst employees who are paid minimum wage.  The DOL indicated this non-enforcement policy would be taken while new regulations were drafted and adopted.  In late March 2018, Congress amended the language of the FLSA to align with the DOL’s position.

As part of the Consolidated Appropriations Act, 2018, Congress amended the FLSA so that it is now permissible to pool tips among employees, even if those employees’ hourly wages meet or exceed the federal minimum wage.  The amendment also allows for non-customarily tipped employees, like cooks and dishwashers, to participate in tip pooling.  Managers and supervisors remain barred from accepting tips or participating in tip pools. 

Note that this addresses changes to federal law only.  Some states have state-specific laws related to tipped employees.  Depending on the state(s) in which you operate, you’ll need to ensure you’re complying with your state’s law.

With that background, let’s turn to a related WWYLD question.

Question:  We run a small restaurant with few employees.  We keep our overhead costs low so that we can provide the highest quality food to our customers.  I’m the owner, but also the chef and the manager.  I sometimes serve customers as well.  Because we share duties, can we share tips? 

Answer:  Some of your employees may be able to share tips, but as the owner/manager, you are prohibited from participating in a tip pool.  The DOL has stated that any individual who meets the following criteria is a “manager” or “supervisor” and cannot participate in a tip pool:

  • An individual whose primary duty is management of the enterprise;
  • An individual who customarily and regularly directs the work of two or more other employees; and
  • An individual who has influence over or authority to hire/fire/promote other employees.

Though you are prohibited from participating in a tip pool, you could consider implementing a “house” or “administrative” charge.  Generally, these charges are set percentages that are automatically added to a customer’s bill.  The funds from these charges can be used for multiple purposes, but are often used to supplement the wages of employees otherwise prohibited from receiving tips/participating in tip pools.  Courts have found that such charges are permissible so long as customers clearly understand that the charges do not equate to a tip.

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