Employers in the restaurant and hospitality industries know it's a common practice to ask workers to share gratuities. Tip pools can promote teamwork and a better customer experience—but they can also land you in hot water if you don't comply with federal and state wage and hour laws.
A Dallas-area restaurant chain recently learned this lesson when the Department of Labor (DOL) found it violated the Fair Labor Standards Act (FLSA) by allowing hourly managers to participate in the tip pool. The agency announced on April 21 that the restaurant owed about $867,500 in unpaid tips and overtime premiums. How can you avoid a similar fate? Here are four tips for complying with the FLSA's tip-sharing rules.
Don't Include Managers in the Tip Pool
Although managers and supervisors are allowed to contribute tips to a pool, they are prohibited from keeping any portion of an employee's gratuities or sharing in a tip pool with nonmanagerial workers. The DOL recently clarified that an employer does not violate the FLSA when a manager or supervisor keeps tips that "he or she received directly from customers based on the service that he or she directly and solely provides."
But employers must still proceed with caution. In situations where a manager helps serve a customer along with an employee, they may not keep any tip that the customer leaves because the managers did not "solely" provide service.
Know How 'Manager' is Defined
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