What guidelines and notices should employers provide for tipped employees regarding their pay and the company’s tip-pooling policies?
Quick Answer
Tip-pooling policies must be formulated with careful regard to all applicable federal, state and local requirements. Plus, proper notices must be given to employees to be eligible to take the section 3(m)(2)(A) tip credit.
Legal Perspective
Kollman & Saucier
Timonium, Maryland
Tipping policies and notifications have federal and state law implications, says author and employment law attorney Darrell VanDeusen of the firm Kollman & Saucier.
The Department of Labor has issued guidance under the FLSA regarding tipped employees. But many states have far more restrictive requirements as to who can be eligible to participate in tip-pooling.
Check with counsel familiar with the requirements where you operate.
Relevant Case Law
Parker v. McCormick & Schmick’s Seafood
Chau v. Starbucks Corp.
Verma v. 3001 Caster, Inc.
HR Insight
The HR Solution
Weatherford, Texas
Depending on laws in the applicable area, HR Consultant Ruth Bassham says, a guide sheet might include the company policy relative to the following:
- minimum wage and tip credit
- tip pools, if any, and positions included
- circumstances for managers retaining personal tips
- the 80/20 rule for tipped and non-tipped duties, and
- procedure for reporting tips.
CertiK
New York, New York
The organization should follow the laws of the state(s) they are in regarding tips, says HR Leader Erin ImHof.
Companies should have clear guidelines on what happens if there is a tip pool; who receives what percentage, such as dishwashers receive 10% of all tips and hosts receive 15%. Clarify that managers will not receive tips.
They should also say that tips are the property of the employees. Define what tips are. Encourage workers to report cash tips and list taxation rules about that. Clarify whether tips count toward the minimum wage, depending on where the state is. List that the employer will pay the credit card fee on all tips. These guidelines should be in the employee handbook and clearly posted at the business. Managers should be trained on this as well, and it should be covered during employee training.
Minnesota Indian Women’s Resource Center
Minneapolis, Minnesota
Follow your state laws concerning tips, advises Director of HR Tamara Jones.
And communication is crucial. Make sure that employees understand the tip laws in your state and how their wages are calculated using the laws. Post the notice in a breakroom or by a time clock and remind people annually of the laws.
The Cost of Noncompliance
Tips Violations: DOL Recovers $230K for 274 Restaurant Workers
Who was involved: Black’s Barbecue Inc. and 274 workers employed at the restaurant located in central Texas.
What happened: A DOL investigation found the employer kept a portion of the employees’ tips and illegally shared them with managers in violation of the Fair Labor Standards Act (FLSA).
Result: The company had to pay $230,353 in back wages to 274 affected workers.
Info: DOL Recovers $230K in Back Wages for Workers Denied Full Tips By Employer, 9/19/22.
Illegal Tip Pool: Restaurant Pays $624K to End EEOC Lawsuit
Who was involved: 167 Raw, a restaurant in South Carolina, and 92 employees.
What happened: The DOL’s investigation found the company required tipped employees to share tips with management and non-tipped employees in violation of the Fair Labor Standards Act (FLSA). Due to the illegal tip pool, the company failed to pay tipped employees the correct wages and also failed to pay them proper overtime rates when they worked more than 40 hours in a workweek.
Result: The company paid $624,000 in back wages to 92 employees.
Info: DOL Recovers Back Wages for Tipped Employees in SC, 5/12/22.
OT, Tip Violations Add Up: Restaurant Pays $867K
Who was involved: Roanoke Hard Eight LLC and 910 employees in Texas.
What happened: The employer failed to pay tipped employees all their tips and hourly managers weren’t paid the correct time-and-a-half rate for all hours worked over 40 in a work week, the DOL’s investigation found.
Result: The company paid $867,572 in owed tips and overtime to 910 workers.
Info: DOL Recovers $867K For 910 Workers Denied Full Tips, OT Wages, 4/21/22.
FLSA violation: Restaurant operator shares tip pool illegally
What happened: The operator of Fiesta Grande Mexican Grill in Mount Dora and Orange City, FL, was sharing servers’ tips with cooks.
What people did: DOL investigators found that Fiesta Grande Mexican Grill Inc. violated the Fair Labor Standards Act by including cooks in its tip pool illegally. When an employer takes credit for workers’ tips toward its minimum wage obligation to those workers, non-tipped employees, like cooks, can’t participate in a tip-sharing agreement.
Result: Now, 45 workers get to share $58,074 of their rightful wages that investigators recovered.
Key Takeaways
Before taking a tip credit under the FLSA, employers must provide the following notice, either verbally or in writing, to tipped employees:
- The amount of the direct (or cash) wage the employer is paying a tipped employee, which must be at least $2.13 per hour;
- The additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required direct (or cash) wage of $2.13 and the current minimum wage of $7.25);
- That the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;
- That all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and
- That the tip credit will not apply to any tipped employee unless the employee has been informed of these tip-credit provisions.
In addition, provide the following info:
- Indicate whether tip-pooling is voluntary or mandatory.
- Explain which employees are included, and how tips will be divided.
- Indicate how much employees will be required to contribute to the pool.
- State that supervisors and managers will not keep any portion of employee tips.
- If you take a tip credit, limit participating employees to those who regularly and customarily receive more than $30 in tips each month.
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