Most employers with tipped employees are well-informed regarding minimum wage rules and tip credit requirements. However, they may not be as familiar with how their local rules governing tip pooling differ from the federal rules.
The federal Fair Labor Standards Act (FLSA) permits tip pooling among employees who customarily and regularly receive tips and prohibits employers from keeping any portion of employees’ tips. However, employers may require tipped employees to participate in a tip pool without violating the prohibition against keeping tips and may even facilitate a tip pooling arrangement by collecting and redistributing employees’ tips if they redistribute shared tips by the regular payday for the week in which the tips were received.
Employers that claim tip credits must limit tip pool participants to only those employees who customarily and regularly receive tips, such as servers and bussers. However, if an employer pays its tipped employees at least the minimum wage and does not take a tip credit, they may require a tip-pooling arrangement that includes back-of-the-house workers like dishwashers or cooks who do not regularly receive tips.
It is important for employers to note that various states have implemented additional tip-pooling rules. For example, Colorado employers may not be aware that the Colorado Wage Act prohibits them from requiring their tipped employees to participate in a tip pool unless all of the following requirements are met:
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Employees are told of the required tip-pooling arrangement in advance, including how the sharing of tips will be calculated and which employees are participating.
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Employees’ combined wages, including direct wages and tips, equal at least the full minimum wage.
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Customers are informed in writing in a way that lets them know before they leave a tip that their tips will be shared, for example, on a menu, receipt, or table tent.
Also, unlike the federal rule, effective January 1, 2024, Colorado COMPS Order #39 permits employers who take tip credits to require tipped employees to share tips with employees who do not customarily and regularly receive tips but perform significant customer service functions in contact with patrons, such as counter personnel, service bartenders, sommeliers, and bellhops, among others.
While this example relates to Colorado law, employers in Arizona, New Mexico, Utah, Wyoming, and other states are advised to check their state and local rules to determine permitted tip pool participants, notice requirements, recordkeeping, and other tip-related rules. Employers Council attorneys are available to answer questions from Consulting and Enterprise members and can be contacted at info@employerscouncil.org. All members that want more information can access our Tipped Employees whitepaper.
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