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Employment Law
The DOL’s Rotating Menu Of Tips: Trying To Stay On Top Of The Latest Rules For Operating A
By Eric Kinder
The Department of Labor (DOL) revised its practices and issued new regulations toward the end of the Trump Administration (though many courts chose not to defer to the revised guidance) and then abruptly changed position. It withdrew rules before their effective dates and promulgated new rules with the switch to the Biden Administration. Here is where we currently stand on “tip pools” for tipped employees.
Under the (“FLSA”), while tipped employees are to receive and keep all tips they receive, there is a carve out that allows for “the pooling of tips among employees whocustomarilyandregularlyreceivetips.” A“TipPool”isanarrangementwhereby employees contribute a portion (or all) of their tips to a general pool to be shared by others, for instance servers sharing tips with those who bus tables. This is different from a tip sharing arrangement which is a voluntary process among employees to share received tips; the DOL does not technically regulate tip sharing arrangements, but considers truly voluntary tip sharing agreements to be rare; with any employer involvement, they the DOL will treat arrangement to be a tip pool and subject to the tip pool regulations.
In general, tip pools are valid so long as the tip pool does not include: (1) employees who do not perform customer service functions or (2) managers. If the tip pool includes either group of impermissible employees, the tip pool is invalid and the employer is not permitted to take a tip credit, which means the employer failed to pay minimum wage. If an employer maintains an invalid tip pool, it will also likely have to repay the tipped employees for any improperly withheld tips that were contributed to the invalid tip pool. “Front of house” employees such as servers, hosts, and bartenders generally receive tips and may be included in a tip pool, while “back of the house” employees such as cooks, dishwashers, and janitors may not be included in a tip pool.
In 2018, Congress amended the FLSA to prohibit employers from keeping tips received by their employees, regardless of whether the employers take a tip credit under section 3(m). This had been the long-standing policy of the DOL, but a circuit split had developed whether the DOL interpretation comported with the law. Subsequently, while it was trying to rescind the 80/20 Rule, the DOL also revised its rules on tip pools to mesh with the congressional change. Under these revised rules, the DOL affirmed that an employer and managers cannot keep employees’ tips under any circumstances, including through tip pools (though managers can
Tip Pool
 Erik Kinder

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