Illegal tip pools can cause big problems for restaurant owners. Many restaurant owners do not understand what makes tip pooling illegal. This can cause owners to get involved into lawsuits that take up their time and money when the problem should not have happened in the first place. Some states may have more stringent rules than others but the federal parameters are pretty straight forward. First, the definitions of “tip pooling” and “tip sharing” need to be understood:
Tip Pooling – A collection of tips divided among employees who regularly receive them. Tip pools are common in any environment in which it is not always clear for whom a tip is meant. This includes bars, coffee shops, buffet meals, delis and other counter service operations.
Tip Sharing – Tip sharing is when tipped employees give a percentage of their tips to other employees, such as bartenders or table bussers.
Under the Fair Labor Standards Act, as long as employees are not required to share tips with employees who do not engage in customer service, such as kitchen or janitorial staff, tip sharing is legal.
Now, tip pooling on the other hand, has a couple more rules that need to be understood.
- Only employees who “regularly and customarily” receive tips are allowed to share in the tip pool. This means that requiring tipped staff to share tips with kitchen or janitorial staff is illegal under federal law.
- Employers are not allowed to share in tip pools. Sometimes, the line between an employer and employee is a bit blurry. Low-level supervisors are allowed to participate in tip pools. So, how do you know who’s who for sure? The FLSA defines an employer as “any person acting directly or indirectly in the interest of an employer in the relation to an employee” (Source). Generally speaking, an individual is considered an employer if he or she can hire and fire employees, control the schedule, determine pay rates and maintain employment records. (Source).
- Employees must not be required to contribute more than what is “customary and reasonable.” Ah yes, now that’s nice and clear, isn’t it? In the past, the Department of Labor has set the “customary and reasonable” rate at 15 percent of an employee’s earned tips (Source).
To keep your restaurant from frying up, make sure you are following the federal regulations when it comes to tip pooling and tip sharing.
If you have questions or concerns on this issue, do not hesitate to call Zeiler Insurance and speak to one of our customer service representatives. As an independent agency, Zeiler Insurance prides itself with quality customer services for the people of the Chicago-land area and the rest of the Midwest. Customer or not, we can review your insurance and see if you are being protected appropriately for the right price.
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Lucas R. Zeiler
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