Tip Pooling and Back of the House Employees
What is Tip Pooling
Does your restaurant or service business accepts tips and have a tip pooling arrangement in place. Have you checked it lately to see if your tip pooling policy is in compliance with Federal DOL labor laws? If not, you’ll want to check out this post and check to see if you are in compliance.
Recent Court Ruling to Impact Tip Pooling
Out on the west coast in the Ninth Circuit a 2-1 ruling was recently handed down. It effectively outlaws tip pooling with employees that typically do not receive tips. For restaurants, this means the back of the house staff (such as kitchen staff), who do not regularly receive tips are not allowed to participate in a tip pool arrangement. The states affected by this ruling are Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington.
The Department of Labor (DOL) argued that it had the authority to enforce rules related to tip pooling if the employer does not take the tip credit. undisputed is the DOL has the right to regulate tip pooling if a tax tip credit is taken. In other words, the law if an employer takes a tip credit they cannot have a tip pooling arrangement that allows tips to be shared with other employees who do not customarily receive tips.
While this ruling impacts the western part of the country it will have implications across the country. Any business that wants to implement a tip pool with employees not directly involved with customers must fear a court case by DOL. The DOL, equipped with a victory in the Ninth Circuit, will be sure to look for other opportunities in other circuits across the country to enforce this policy.
The National Restaurant Association and co-plaintiffs are considering appealing the ruling to a full 11-judge panel of the Ninth Circuit Court of Appeals.
Policies, Procedures and Rules Need to be Followed for Tip Pooling
While, you are allowed to pool tips and distribute to employees, there are restrictions about how you can distribute pooled tips and who can receive the tips. For North Carolina Businesses here are procedures and rules that need to be followed:
- Employers must notify the contributing employees of the arrangement before the pay period in which it is used.
- Employers must notify tipped employees of any tip pool contribution amount.
- The share of each contributing employee is at least 85% of the employee’s tips before the employee contributes to the tip pool
- Participants of a pooled tip arrangement are limited to employees who customarily and regularly receive tips such as wait staff, bellhops, counter personnel, bartenders, bussers, etc.
- Back of the house employees such as cooks, dishwashers, janitors and other kitchen staff are typically excluded from participating.
- Staff with supervisory and management responsibility are excluded from participating in a tip pool arrangement.
- Employers can only take a tip credit for the amount of tips each employee receives.
- None of the pooled tips can be retained for any purpose other than distribution of all pooled tips to eligible tipped employees.
For more information or help setting up accounting and bookkeeping systems for your restaurants check out our resource page.