Unlawful Tip Pooling

In the United States, it is illegal to require an employee to share tips with employees who are not directly involved in customer service. This practice is called unlawful tip pooling and can lead to lawsuits from those who do not receive a portion of the pooled tips. Below is more information about unlawful tip pooling.

What is Unlawful Tip Pooling?
Unlawful tip pooling is the practice of requiring employees who do not customarily receive direct tips, to contribute a portion of their information to a shared pool which will be distributed among employees who work in an occupation where they customarily and directly receive tips. An example of an occupation where employees customarily and directly receive tips is a food server at a restaurant.

There are laws in place to prevent managers and other non-tipped employees from sharing in the tip pool. These laws vary by state, but they typically prohibit supervisors, shift leaders or other managerial staff from participating in the tip pool. These laws also often prohibit employers from taking a percentage of tips to share with employees who do not customarily receive direct tips.

Who is Affected by Unlawful Tip Pooling?
Some states have statutes stating that an employer may require all directly tipped employees, such as servers and bartenders, to participate in tip pools. Other states prohibit the participation of any employees other than those who customarily and directly receive tips.

The Fair Labor Standards Act (FLSA) considers an employer’s tip pooling practices if:

the employer uses tipped employees, most of whom customarily and regularly receive more than $30 a month in tips. The employees who receive tips customarily and regularly receive more than $30 a month in bonuses, or any employee participates in the tip pool.

The FLSA says that managers may not participate in the tip pool. Managers, by definition, are supposed to have managerial responsibilities, which include hiring and firing employees, supervising them, assigning work shifts, etc. If the employer allows managers to participate in the tip pool, however, it is legal.

What is Considered a Tip?
A tip is generally considered a sum of money presented by a customer in recognition of some service performed for him. The definition of what is a tip can vary from state to state, but this federal minimum wage law clarifies that the following are not tips or wages:

cashback received when you pay with cash or credit instead of a tip;

charges added to credit card bills for goods or services that are more than the amount of the actual bill, stating that this charge is a “service charge” and then distributing it to employees;

the value of any non-monetary items exchanged between customers and employees, such as food and drinks.

What are the Consequences of Unlawful Tip Pooling?
The consequences of unlawfully tip pooling employees can vary by state. It is often considered a civil offence that results in audits and fines. Some conditions may allow for criminal prosecution if an employer does not comply with the law.

If an employer requires all directly tipped employees to participate in a tip pool, he is subjecting himself to the FLSA. In this case, the risk of being sued by any participating employee or even a customer who feels that they did not receive enough tips because of unlawful tip pooling may be too significant for the employer. If an employer does not follow proper regulations in his tip pooling practices, he may be found guilty of violating the FLSA or other applicable state laws.

If you believe that your employer requires you to participate in an unlawful tip pool, speak with an attorney or contact the Department of Labor. You may be eligible for compensation for any unpaid wages due to participating in tip pools or other tip violations.

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