Tip sharing and tip pooling are common practices in the service industry where employees receive tips as a significant portion of their income. However, the laws surrounding these practices can be complex and confusing for employers and employees alike. In December 2020, the U.S. Department of Labor issued a final rule clarifying the regulations surrounding tip sharing and employer penalties.
Tip Sharing vs. Tip Pooling
Tip sharing refers to the practice of employees sharing their tips with other employees who also directly serve customers, such as servers sharing tips with bartenders or food runners. Tip pooling is a similar practice, but it involves collecting all tips into a pool and distributing them equally among all employees who directly serve customers, regardless of their specific job duties.
Tip Sharing Laws & Regulations
Under the Fair Labor Standards Act (FLSA), tips are the property of the employee who receives them, and employers cannot take a portion of an employee’s tips for themselves. However, employers are allowed to require tip sharing or tip pooling among employees who customarily and regularly receive tips. This can help ensure that all employees who contribute to the customer experience receive a fair share of the tips.
The new DOL rule clarifies that employers can require tip sharing or tip pooling as long as they pay employees at least the full minimum wage and do not keep any portion of the tips for themselves. Additionally, employers are now allowed to require tip sharing or pooling among employees who do not customarily and regularly receive tips, such as cooks and dishwashers. This change is meant to recognize that all employees play a role in creating a positive customer experience.
Employers are also required to notify employees of any tip sharing or pooling policies and to keep accurate records of tips received and distributed. Employers must keep these records for at least three years and provide them to the DOL upon request.
Violating Tip Sharing Laws
One important aspect of the new rule is that it imposes penalties on employers who violate the tip sharing and pooling regulations. If an employer keeps any portion of an employee’s tips, they can be held liable for damages equal to the amount of the tips kept, plus an equal amount as liquidated damages. The employer can also be subject to civil penalties of up to $1,100 for each violation.
It’s important to note that the new rule only applies to employers who pay their employees the full minimum wage. Employers who take a tip credit and pay their employees less than the minimum wage are subject to different regulations. For example, under the FLSA, employers who take a tip credit are prohibited from requiring tip sharing or pooling among employees who do not customarily and regularly receive tips.
The new DOL rule on tip sharing and pooling clarifies the regulations surrounding these practices and imposes penalties on employers who violate them. While employers are allowed to require tip sharing or pooling, they must pay employees at least the full minimum wage and cannot keep any portion of the tips for themselves. Employers must also notify employees of any tip sharing or pooling policies and keep accurate records of tips received and distributed.
For assistance with tip sharing compliance in Nevada, contact Rafii Law for a consultation.
