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Tip Pooling Law

Monday, January 29, 2018   (0 Comments)
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If you have tipped employees, ask yourself the following questions.

  •  Do you Tip Pool or Tip Share in your business?
  • Are your servers receiving the “tip credit” wage of $2.13 per hour? 
  • Does your tip pool include back of the house employees? 
  • Is tip pooling required? If it is voluntary, is there a perceived policy where staff “feels like” they have to participate?

If you answered yes to any of these questions, you need to Keep Reading!



The following article provides an overview of current regulation and proposed changes from the Department of Labor (DOL).  If you want to let government officials know how you feel about proposed changes to tip pooling, please follow the link to leave your comments and read what others have to say.  


Operators should confirm that their policies meet DOL requirements to avoid significant fines from an audit.   Recent audits have resulted in fines of $20,000 to over $100,000.  Ensuring compliance begins with understanding what is and is not allowed under current law.  


Current Law:
The DOL has issued the following guidelines concerning the application of the Fair Labor Standards Act (FLSA) to employees who receive tips.


Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (FLSA)

Tipped employees are those who customarily and regularly receive more than $30 per month in tips.  Tips are the property of the employee.  The employer is allowed to use the tip as a credit against its minimum wage obligation to the employee “tip credit” or in a valid tip pool. 


Tip Credit: Section 3(m) of the FLSA permits an employer to take a tip credit towards its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage.  Thus, the maximum tip credit that an employer can currently claim under the FLSA is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13).   The employer is also required to provide oral or written notice to their employees before using the tip credit.  

Tip Pool: The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangements among employees who customarily and regularly receive tips, which as waiters, waitresses, bellhops, counter personnel (who serve customers), bussers, and service bartenders.  A valid tip pool may not include employees who do not customarily and regularly received tips, such as dishwashers, cooks, chefs, and janitors.  


Typical problems:

  • Where an employee does not receive sufficient tips to make up the difference between the direct (or cash) wage payment (which must be at least $2.13 per hour) and the minimum wage, the employer must make up the difference.
  • Where deductions for walk-outs, breakage, cash register shortages, or cost of uniforms reduce the employee’s wages below the minimum wage, such deductions are illegal.  
  • When a tipped employee is required to contribute to a tip pool that includes employees who do not customarily and regularly receive tips, the employee is owed the full $7.25 minimum wage and reimbursement of the amount of the tips that were improperly utilized by the employer.  

Proposed Law:
On December 5, 2017, the U.S. Department of Labor published a Notice of Proposed Rule Making (NPRM) regarding the tip regulations.  

Under the proposed rule, workplaces would have the freedom to allow sharing of tips among more employees.  This change would only apply where employers pay a full minimum wage and do not take a tip credit. It would allow sharing of tips through a tip pool with employees who do not traditionally receive direct tips – such as restaurant cooks and dishwashers.  The proposal would not affect current rules applicable to employers that claim a tip credit under the FLSA.  

The Department of Labor promulgated tip regulations in 2011 that restricted this option. Since 2011, there has been a significant amount of litigation involving the tip pooling and tip retention practices of employers that pay a direct cash wage of at least the federal minimum wage and do not claim an FLSA tip credit.  There has also been litigation directly challenging the Department’s authority to promulgate the provisions of the 2011 regulations that restrict sharing of tips.

This NPRM seeks the views of the public on the proposed rescission of those portions of the regulations.  The 30-day comment period for the NPRM was originally scheduled to end on January 4, 2018. However, on December 15, 2017, the Department published a notice in the Federal Register extending this comment period for an additional 30 days, to February 5, 2018. You may submit comments on or before February 5, 2018, at or by following the instructions listed in the NPRM as published in the Federal Register.

The content of this article was taken from United States Department of Labor Wage and Hour Division.  

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