“Tip Pooling” Addressed in Federal Omnibus Bill:
Employers are Prohibited from Keeping Tips
March 27, 2018
Among the 2,232 pages of the omnibus bill signed into law by President Trump on March 23, 2018, is an amendment to the Fair Labor Standards Act (FLSA) making clear that employers are prohibited from keeping tips received by its employees. The amendment states, “An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.”
Background
The amendment addresses a concern raised by employees and workers’ advocacy groups following the Trump administration’s Notice of Proposed Rulemaking (NPRM) announced in December 2017 that would permit employers to pool tips in certain situations and to distribute them among traditionally non-tipped employees, including back-of-the-house employees like cooks and dishwashers, as well as – theoretically – managers and supervisors. Tips could be pooled and distributed among non-tipped employees only when the employer does not claim a tip credit, or, in other words, pays all employees at least the full minimum wage. This rule presently is “proposed,” and it is unknown when or if it will become final. In light of the amendment included in the omnibus bill, the final rule will not permit managers or supervisors to participate in any tip pool.
The December 2017 NPRM was in response to an Obama-era “final rule” implemented in 2011 that prohibited employers from pooling and distributing tips among non-tipped employees even when the tipped employees were receiving the full minimum wage and the employer was not claiming a tip credit. Litigation regarding the validity of the final rule has resulted in inconsistent appellate court rulings.
What Employers Should Know Now
The FLSA has long permitted tip pooling among employees “who customarily and regularly receive tips,” such as servers, bartenders, and bussers, even when the employer claims a tip credit. The amendment leaves intact the language of the FLSA permitting this practice.
The NPRM is not yet in effect. Despite some media reports to the contrary, the amendment does not authorize employers to pool and distribute tips among non-tipped employees. Should the NPRM become a final rule, employers will need to evaluate whether any pool participants are the types of “managers” or “supervisors” prohibited by the amendment from keeping tips. It remains to be seen whether employees who exercise a limited degree to supervisory authority while simultaneously bartending or serving food could be included in a tip pool.
Employers who claim the tip credit must provide notice of taking the tip credit to affected employees. In states, such as Florida, where the state law minimum wage increases every year, this means employers taking a tip credit must generally update their tip credit notices at the beginning of the year to reflect this increase.
Employers should review their tip credit and tip pooling practices to ensure compliance with the FLSA. This assessment should include not only an analysis of payroll records and tip-sharing practices, but a review of on-boarding documents for tipped employees (which should include the initial tip credit notice to the employee) as well as DOL-mandated postings in the workplace pertaining to the FLSA.
For assistance, or if you have any questions regarding your wage and hour practices, please contact Keith L. Hammond, Esquire, at (407) 730-9909 or keith@hammondlawcenter.com