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Employment Law
keep tips provided to them for services they personally offered). These revisions also established than an employer who pays the full minimum wage and takes no tip credit may allow employees who are not tipped employees (the “back of house” employees) to participate in the tip pool. The Final Rule also established that any employer who collects tips as part of a mandatory tip pool generally must fully redistribute the tips within the same pay period.
To minimize the risk and administrative burden of the 80/20 Rule and tip pooling rules, which can confound even experienced wage and hour practitioners and are difficult to administrate, employers may simply pay all their employees at least minimum wage and not take a tip credit. Doing so avoids the 80/20 Rule and the associated headache of tracking tipped employees’ non-tipped work. It also allows the employer to expand tip pools to include “back of house” employees (but still not itself or managers), which is often viewed as more egalitarian, and avoids significant potential consequences with an improperly managed tip pool (which can include liquidated damages).
Employers also have the option of adding a mandatory service charge, or a required additional charge that is normally stated directly on a bill. These service charges are considered part of the employer’s gross receipts, and the employer can share, or not share, these service charges among its employees as it deems fit. Bear in mind that adding sample calculations for possible tips is, according to Internal Revenue, not the same as adding a service charge because the customer ultimately determines the amount of the tip (or leaves the amount blank). Of course, imposing a mandatory service fee can create customer unrest as the customers bristle at the increased mandatory cost, and HR concerns as tipped employees see the fees cutting into their expected tips.
Eric Kinder is a Member at Spilman Thomas & Battle, PLLC in Charleston, WV. Contact him at: ekinder@spilmanlaw.com.
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FDCC ANNUAL INSIGHTS 2023