How to Make Sure Your Tip Pool Is Legal
Illegal tip pools can cause great headaches, or worse, for restaurant owners. Recently, a spate of tip-pooling lawsuits, from Les Halles in New York all the way to the giants Hard Rock Café and Starbucks has gotten many restaurant owners worried if they might be next.
Well, not to worry. It isn’t as tricky as all the litigation might lead one to believe. There are a few federal parameters to keep in mind. Beyond that, be sure to check with your state’s labor board, as some states have a few more stringent rules that go beyond the federal tip pool regulations.
First a few definitions, to highlight the differences between tip pooling and tip sharing:
- Tip pooling: A collection of tips divided among employees who regularly receive them. Tip pools are common in any environment in which it is not always clear for whom a tip is meant. This includes bars, coffee shops, buffet meals, delis and other counter service operations.
- Tip sharing: Tip sharing is when tipped employees give a percentage of their tips to other employees, such as bartenders or table bussers.
This article addresses legal issues revolving around tip pooling, not tip sharing. Tip sharing is legal under the Fair Labor Standards Act, as long as employees are not required to share tips with employees who do not engage in customer service, such as kitchen or janitorial staff.
Now. Tip pooling. Keep these three rules in mind and you won’t end up like Mario Batali:
- Only employees who “regularly and customarily” receive tips are allowed to share in the tip pool. This means that requiring tipped staff to share tips with kitchen or janitorial staff is illegal under federal law.
- Employers are not allowed to share in tip pools. Sometimes, the line between an employer and employee is a bit blurry. Low-level supervisors are allowed to participate in tip pools. So, how do you know who’s who for sure? The FLSA defines an employer as “any person acting directly or indirectly in the interest of an employer in the relation to an employee” (Source). Generally speaking, an individual is considered an employer if he or she can hire and fire employees, control the schedule, determine pay rates and maintain employment records. (Source).
- Employees must not be required to contribute more than what is “customary and reasonable.” Ah yes, now that’s nice and clear, isn’t it? In the past, the Department of Labor has set the “customary and reasonable” rate at 15 percent of an employee’s earned tips (Source).
See? That’s not so hard! Mario Batali was probably just too busy picking out his shoes to make sure he was following the rules. To keep your restaurant out of hot water, follow the federal regulations and double check with your state labor board.
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