Buried in the 2,232 page omnibus budget bill recently signed by President Trump was an important change regarding the use of tip pools. Employers who do not take a tip credit are not required to police their employees to determine if their tip pool includes “back of the house” employees, which would have previously been unlawful. However, an employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.
This amendment to the Fair Labor Standard Act represents a significant change. Prior to the amendment, restaurants were required to ensure that the only employees who participate in a tip pool – an arrangement where the waiters, bartenders, and other employees who receive tips directly from the customers “pool” their tips with other employees at the restaurant – were those who “customarily and regularly” provide customer service and receive at least $30 per month in tips (e.g., wait-staff, bartenders, hosts, bussers, bar-backs, runners, etc.). Due to a 2011 regulation during the Obama administration, this was true regardless of whether the employer took a “tip credit” towards the minimum wage for the employees who received tips (federal law permits employers in certain industries to pay employees as much as $5.12/hour below minimum wage so long as they receive tips in excess of that amount to cover the difference), as well as employers who do not take the tip credit. In other words, under the Obama-era regulations, even those employers who did not take a tip credit were required to ensure that tip pooling arrangements at their restaurants did not include employees outside of the chain of employees who provide direct customer service. In practice terms, this means that tip pooling arrangements that included cooks, dishwashers or other “back of the house” employees would be deemed to violate the FLSA even if the employer was not taking the tip credit for any of its employees.
However, the omnibus bill just passed by Congress and signed by President Trump changed all that. Stated simply, the amendment permits the pooling of tips with back of the house employees if the employer elects to forego the tip credit, but makes clear that, in no circumstance, can a tip pool include supervisory-level personnel. As was the case before the amendment, any employer who does, in fact, require employees to pool their tips with managers or supervisors will not only be liable for the amount of the tip credit for each and every employee who participated in the tip pool, but will also be on the hook for the tips removed from the pool, and an equal amount of liquidated damages and fines.
In theory, this means that for those restaurants that do not operate in states with more stringent state statues (such as New York, where pooling tips with back of the house employees is strictly prohibited, regardless of whether the employer takes a tip credit), and do not utilize the tip credit can rest easy knowing they won’t be subject to a civil lawsuit under the FLSA based on the now permissible inclusion of back-of-the-house employees in a tip pool. However, at this point it is unclear whether this amendment will affect other portions of the 2011 tip credit regulations, such as the portion requiring that the employer notify the employee in advance regarding the use of the tip credit so employers should proceed cautiously.
That being said, because tip pooling laws are often state-centered, restaurants would be wise to consult with counsel prior to amending any existing tip-pooling policies based on the recent amendment.
