Many employees in the restaurant industry rely on tips for a significant portion of their earnings. Many of these workers are also familiar with the process of pooling (or sharing) tips among all the tipped workers at their restaurant. Employers cannot simply construct tip pools however they want; federal law contains several restrictions on how employers pool tips. Whether you are an employer or an employee, if you have questions about the legality of your tip pool, contact a knowledgeable Atlanta tip-pooling lawyer for reliable answers.
According to a recent news release from the federal Wage and Hour Division, a Southern California restaurant was operating an illegal tip pool.
As background, the Fair Labor Standards Act does not set a limit on the percentage or amount of each employee’s contribution in valid mandatory tip pools. Instead, a tip pool’s validity depends on whether or not the employer takes the tip credit.
The tip credit is a legal mechanism that allows employers of tipped workers to pay them a cash wage below the federal minimum wage. Federal law sets the minimum cash wage for tipped workers at $2.13 per hour. In businesses that pay tipped workers a $2.13 cash wage, the tip credit is $5.12. Payment of a higher cash wage by the employer results in a lower tip credit and vice versa. If the worker’s actual tips fall below the tip credit amount, the employer must make up the difference such that the employee’s total wages equal at least $7.25 per hour.
Non-traditional and Traditional Tip Pools
If the employer pays employees a cash wage of $7.25 per hour or more, the employer may “impose a mandatory tip pooling arrangement that includes employees who are not employed in an occupation in which employees customarily and regularly receive tips.” This is called a non-traditional tip pool.
In a traditional tip pool, the employer pays workers a cash wage of less than $7.25 per hour and relies upon the tip credit. Employers that take tip credits can establish a tip pool, but the contributions must be tips only, and the workers who participate in the pool must be “limited to employees in occupations in which they customarily and regularly receive tips, such as waiters, bellhops, counter personnel (who serve customers), bussers, and service bartenders.”
An Illegal Tip Pool
In the Southern California restaurant case, the entity operated a traditional tip pool. However, the employer was illegally retaining a percentage of the tips in the pool and instructing managers to distribute only a fraction to workers. That is illegal. The law requires entities operating traditional tip pools to pay all tips collected to tipped workers. There is minimal leeway in this. The employer cannot, for example, take funds from a tip pool and simply give them to a manager whose house burned down, even if the employer had good intentions. The law is clear that an “employer that implements a traditional tip pool… may not retain any of the employees’ tips for any other purpose.” The employer may raise charitable contributions from its tipped workers in other ways, but it must distribute all its pooled tips to its tipped workers.
If you have questions about your tip pool and its compliance with the law, the experienced Atlanta tip-pooling attorneys at the law firm of Parks, Chesin & Walbert can provide the information you need. Contact us through this website or at 404-873-8048 to schedule a consultation today.