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Fair Labor Standards ActJune 7, 2019by Stanton LawNavigating the FLSA Tip Credit: Part 5—Tip Pools

by Amy Thomson.

Navigating the FLSA Tip Credit: Who and What Qualifies, Valid Tip Pools, and Other Things You Need to Know

Did you miss our previous posts about FLSA when it comes to tips? You can always access them online to learn more about this important topic:

This post, the fifth and last in our series on FLSA and tipping, discusses tip pools, both voluntary and mandatory.

Are Tip Pools Allowed Under The FLSA?

Voluntary Tip Pooling

When tipped employees decide to share their tips with other employees (whether tipped or untipped), the arrangement is referred to as tip sharing. The FLSA does not address tip sharing. However, the DOL does recognize the practice and treats the shared tips as belonging to the employee who ultimately receives the shared tips, rather than the employee contributing the tips.

Mandatory Tip Pooling

A mandatory tip pool is one where the employer requires tipped employees to contribute a portion of their tips to a pool that is divided and redistributed to a group of employees according to a predetermined system. The pooled tips are considered the property of the employees who ultimately receive the tips, not the employees who make the contributions.

The FLSA does not impose a maximum contribution amount or percentage on valid mandatory tip pools. It has traditionally limited participation in mandatory tip pools to tipped employees, but recent revisions suggest that non-tipped employees (but still not managers and supervisors) may participate when the employers do not take the tip credit. You should consult an employment attorney before allowing non-tipped employees to participate in a mandatory tip pool.

Mandatory Tip Pool Requirements:

  • Employers must provide employees with advance notice of any tip pool and the required contribution amount. This is usually in conjunction with the notice provided to the employee regarding the tip credit. We recommend this notice be in writing.
  • Employers must satisfy their minimum wage obligations and cannot require employees to contribute any part of their tips that would cause them to earn less than the minimum wage.
  • Employers cannot require employees to contribute more to the pool than what is “customary and reasonable.” This is a vague term, and you should call an employment attorney if you have any questions.
  • Employers cannot keep employee tips for any purpose other than a valid tip pool.
  • Employers must limit participation in the tip pool as necessary. For example, they cannot allow managers and supervisors to keep any portion of employee tips for any purpose. In addition, when the employer takes the tip credit, they must ensure that only tipped employees participate.

Why Does It Matter?

Under the FLSA, employers who unlawfully keep employee tips will be liable for those tips and the amount of any tip credit taken. In other words, an employer may be liable to the employee for any tips they unlawfully kept and for an additional $5.12 per hour (based on the current federal minimum wage of $7.25) for each hour worked by the employee for the tip credit taken by the employer. Additionally, the employer would be liable for liquidated damages and attorney’s fees, which will amount to thousands of dollars. As we’ve mentioned before, FLSA problems can be very costly!

FLSA Attorney Atlanta

You may have questions about your tipped employees—for example: do they qualify as tipped employees, is your tip pool is valid, do certain employees qualify as managers or supervisors and therefore shouldn’t receive tips? Take a minute to resolve these issues. Call Amy Thomson, an experienced Georgia employment law attorney at Stanton Law, at 404-531-2341.