November 20, 2019 Do you have tipped employees? A tip pool? If so, soon, you may have more flexibility in who can participate in your tip pool. The Fair Labor Standards Act (“FLSA”) governs how employers compensate tipped employees. The FLSA provides that employees must receive a minimum wage for all hours worked. But, tipped employees may be paid a special minimum wage of $2.13 per hour, if the tips raise the employee’s wages to at least the current federal minimum wage of $7.25 per hour (and the Nebraska minimum wage of $9.00 per hour).

A tipped employee is an employee that regularly and customarily receives more than $30 in tips a month. Tipped employees can be servers, bartenders, busboys, hotel bellhops, and beauty operators, among others. An employer can claim a tip credit for the dollar amount of tips paid to a tipped employee above $2.13 per hour to satisfy the minimum wage requirement. Additionally, an employer may create a tip pool. A tip pool aggregates tips received by tipped employees into a pool and redistributes the tips based on a formula, agreement, or understanding created by the employer. Under current rules, only tipped employees can be included in tip pools. That may soon change.

On October 8, 2019 the United States Department of Labor proposed a rule that would affect which employees can participate in tip pools. Today, only “front of the house” employees, or tipped employees, are eligible to participate in tip pools. Among other things, the proposed rule would allow tip pools to include “back of the house” workers, such as cooks and dishwashers.

The proposed rules have several other provisions:

Prohibits employers from keeping employee’s tips and prohibits managers and supervisors from keeping any portion of the tips
Clarifies the extent to which an employer may control an employee’s tips
Uses the executive employee exemption duties test to determine if an employee is a manager who cannot keep any portion of an employee’s tips
Provides that an employer must pay out tips no less often than when it pays wages
Provides for new civil monetary penalties for repeated or willful violations
Imposes recordkeeping requirements on employers who do not take a tip credit, but who compensate employees with tips
Permits an employer to take a tip credit for any amount of time a tipped employee performs related, non-tipped duties at the same time, or immediately before or after, the tipped employee’s performance of any tipped duties. The latter requirement will likely need to be litigated to determine what “immediately before” or “immediately after” mean

The tip-credit and tip pooling rules are complex. To stay compliant and up to date on changes in employment law, contact Harvey Cooper at 402-392-1250.