tip pooling

New Federal Law Prohibits Tip-Pooling with Management for All Employers

In many professions, workers depend heavily on tips to earn a livable income. This is especially true in the hospitality industry, where bartenders, waiters and waitresses, delivery drivers, hotel maids, and many others derive the vast majority of their income from tips. Some employers pay less than the minimum wage to employees who earn at least $30.00 per month or more in tips if these employees are able to make up the difference through their tip income, and as long as the employer is in compliance with the Federal Labor Standards Act (FLSA).

One of the most important provisions of the FSLA that pertains to tipped employees is that, if an employer pays below the minimum wage and lieu of tips (also known as taking a “tip credit”), employers, supervisors, managers, and “back house staff” (i.e., those who work behind the scenes such as dishwashers and cleaning staff) are not allowed to participate in any “tip-pooling”.

Tip-pooling means taking all of the tips of a group of employees and dividing them among each employee, sometimes equally and sometimes according to other preset guidelines. Employers who take a tip credit and allow management or back house staff to participate in a tip pool are in violation of the FSLA, making them liable for damages.

A provision in the Consolidated Appropriations Act for 2018 amended the FSLA to prohibit employers from allowing management to be part of a tip-pooling arrangement regardless of whether or not the employer takes the tip credit. This is a major change to FSLA guidelines regarding tipped employees, because employers may now be in violation of the Act even if they are paying their employees (who are receiving tips) the full minimum wage. Employers who don’t take a tip credit had until March 23 of 2018 to ensure that their managers and supervisors were excluded from any tip pools.

What has Changed under the New Law?

For employers who already take a tip credit, nothing has really changed with the new amendment – they were already prohibited from allowing management and back house staff to participate in tip pools, and they are still prohibited from doing so. So, the only employers that are really affected by this change are those who do not take the tip credit.

As mentioned earlier, the most significant change is that employers who pay full minimum wage are no longer allowed to let their managers and supervisors participate in tip pools as the Act equates such practices to an employer keeping their tips. In the Department of Labor (DOL) field assistance bulletin pertaining to the amendment, the DOL states that it would use the duties test for the executive exemption (29 C.F.R. § 541.100(a)(2)-(4)) “to determine whether an employee is a manager or supervisor for purposes of section 3(m).”

This means that the prohibition of managerial participation in tip pools might not apply to lower level supervisors or team leads if they do not have authority over certain areas such as hiring, firing, disciplinary actions, etc. That said, these are initial field guidelines that could be changed over time, and the courts could apply this rule differently in the future as well. As always, speak with an experienced employment law attorney to discuss your specific case, how the law is currently being applied, and your legal rights and options.

Another area that was addressed in the field assistance bulletin was whether or not back house staff can participate in tip-pooling for employers who pay a full minimum wage. For now, these employers can allow tips to be pooled with cooks, dishwashers, and other non-management and nonsupervisory staff that are not “customarily and regularly tipped.” However, this could be subject to change as additional rules are made in the future to further clarify the 2018 amendment.

Contact Alabama Employment Law Attorney Kira Fonteneau

If you believe your employer may be in violation of FSLA tip-pooling guidelines or has engaged in any other FSLA violation against you, you may be entitled to damages, which may include compensation for tips illegally withheld and additional monetary damages. Call attorney Kira Fonteneau today at 205-564-9005 for a free and confidential consultation to discuss your case. You may also send us a message through our online contact form.