Know the New Tip Pooling Rules for Tipped Employees

Under the Fair Labor Standards Act (FLSA), an employer is permitted to pay a reduced hourly wage to tipped employees, provided they receive enough tips to bring hourly wages to the federal minimum wage. Employers may claim credit for tips the employees have received both directly and as a distribution from a tip pool. The FLSA previously prohibited tip sharing between customarily tipped employees (like servers and bartenders) and other non-tipped “back of the house” employees (such as chefs, cooks, porters and dishwashers).

However, in March 2018, Congress amended the FLSA and the new amendment now permits tip sharing between tipped and non-tipped employees, as long as the employer pays full minimum wage rather than the reduced hourly wage to its employees and does not take a tip credit. Wage disparity seems to be the reason for this amendment as the U.S. Department of Labor noted that the back-of-the-house employees receive less overall compensation despite their contribution to the overall customer experience.

In short, assuming that an employer pays its employees full minimum wage, employees such as chefs, cooks, porters, dishwashers, and maintenance staff are now permitted to be incorporated in tip pools. However, tip pooling is still prohibited amongst the employees with subminimum wage or when tips are being shared with employers, managers or supervisors.

The new amendments also provide enforcement authority by allowing employees to recover all tips unlawfully kept by the employer, in addition to an equal amount in liquidated damages. The Department of Labor is also permitted to impose civil penalties, not to exceed $1,100 when employers unlawfully retain employees’ tips.

If you are an employee of a restaurant or a bar and find yourself in a situation in which your employer unlawfully retains your tips or violates your tip entitlement, consult with attorneys at Lebau & Neuworth who are experienced in litigating unlawful tip credit, tip retention, tip pooling, and tip sharing cases. Contact us at 888-456-2529 or lebauneuworth.com/contact-us.