The Reddit platform can be a source of amusement and distraction. Occasionally, it can also provide an opportunity for education. Take, for example, a post from earlier this week centering around a pay practices problem and tipped employees. While wholly unverified, the post highlights an example of how employers can violate the law if they are not mindful of the Fair Labor Standards Act’s requirements and why they should consult an experienced Atlanta wage and hour lawyer if they have any questions about handling employees’ tips.
According to the employee, her manager sent a group text message addressed to “all employees.” The manager, “Kelly”, informed her team that the “pooled tips we’ve gotten… won’t be distributed. Janice’s mom just passed away and they could use it more than we do at the moment.”
After reading that, many might wonder, “Can they do that legally?” In short, the answer is “probably not.”
For our discussion, let’s assume that all of the facts laid out by the employee were true and that the employees worked in the United States. If so, this action raises serious red flags regarding the FLSA, which allows employers to “pool” tips but erects some clear limitations that the U.S. Labor Department’s Wage and Hour Division lays out in a “Fact Sheet.”
As the Division noted, many tip pools are “traditional tip pools,” meaning that the workers contributing to the tip pool are only employees who “customarily and regularly receive tips.” The WHD’s fact sheet explicitly warns that an “employer that implements a traditional tip pool must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for tips each tipped employee ultimately receives, and may not retain any of the employees’ tips for any other purpose.” (Emphasis added.) An employer who redirects pooled tips to one needy employee, even if motivated by noble intentions, has possibly violated the FLSA.
Tip Pools and the Minimum Wage
Even beyond the illegal handling of the tip pool, this sort of action raises a problem related to the tip credit. When a Georgia employer avails itself to the law’s “tip credit,” it may pay tipped employees a minimum wage of $2.13 per hour, and claim a tip credit of $5.12 per hour.
The law only allows employers to pay tipped employees a wage of less than $7.25 per hour if those employees earn enough tips to end up with a total pay equaling or exceeding $7.25 times the number of hours worked. If a tipped worker received the $2.13 rate but did not receive any of her pooled tips, her employer would be legally obligated to provide her with additional cash wages to bring her pay up to the $7.25 rate. Failing to take that further step potentially represents a minimum wage violation.
While we have no way to know if the Reddit post was factual, fictional, or somewhere in between, it nevertheless highlights a very important point. The law imposes some clear restrictions on employers’ handling of pooled tips. Employers should be mindful of these because, regardless of benevolent intentions, errors can create legal liability. “Kelly” would have been better served by establishing a GoFundMe for “Janice” and distributing the pooled tips as usual.
Overtime and minimum wage disputes are common in industries that rely on the $2.13 minimum wage and the tip credit. Whether you are a tipped employee who believes that your employer has mishandled your tips (pooled or otherwise) or an employer seeking to ensure compliance with the law, the Atlanta wage and hour attorneys at the law firm of Parks, Chesin & Walbert can help. Our team possesses in-depth experience and knowledge, allowing us to provide reliable advice, powerful advocacy, and practical solutions. Contact us through this website or at 404-873-8048 to schedule a consultation today.