Federal Law Alert: The rules around tip pooling have been mired in litigation since 2011, when regulations came into effect that forbid tip pooling between employees who customarily receive tips and those who do not. The recently passed federal budget bill has created clarity by amending the Fair Labor Standards Act (FLSA) and eliminating that rule for employers who do not take a tip credit.
Since the rule has been eliminated entirely, court decisions interpreting it—such as Oregon Restaurant and Lodging Association, et al v. the U.S. Department of Labor—are irrelevant.
The amended portion of the FLSA, while allowing for tip pooling between front and back of house employees if no tip credit is taken, clearly states that tips cannot be shared with managers or supervisors. To determine if someone is a manager or supervisor for the purpose of the tip pooling statute, employers should apply the White Collar Executive duties test below. An employee is only disallowed from sharing in tips if all of the following are true:
- Their primary duty is the management of an enterprise in which the person is employed or a customarily recognized department or subdivision; and
- They customarily and regularly direct the work of two or more full-time employees (or the equivalent, e.g., four 20-hour per week employees); and
- They have the authority to hire, fire, or promote other employees or effectively recommend similar actions.
Given the specificity of the test, a fair number of workers who operate in a supervisory capacity on an occasional basis, or while performing their own customer service tasks, will likely still be eligible to share in tips.
Employers who do take a tip credit are still prohibited from enforcing any tip pooling system that shares tips with employees who do not customarily receive tips.
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