Tip Pooling and Tip Sharing
Today, creativity among employers is at an all-time high when it comes to circumventing the minimum wage laws – especially when it comes to tipped employees. It is no surprise that employers continuously attempt to use state and federal minimum wage laws to their advantage – engaging in what I refer to as Wage Theft. However, employers fail to recognize that their creative thinking in manipulating the minimum wage laws can result in huge liability for unpaid wages under the Fair Labor Standards Act.
Your tips are your property! Stealing someone’s property takes on a whole new meaning when it comes to tipped employees. We often think of stealing property as the taking of a physical object without permission, which to most is clearly obvious. However, tipped employees encounter property loss in a different less obvious manner, such as invalid tip pooling and tip sharing arrangements. Therefore, it is important to understand how employers use tip pooling and tip sharing arrangements to disguise wage theft.
Are tip pooling and tip sharing arrangements legal?
Yes, under Federal and Texas law an employer is allowed to take a tip credit towards the minimum wage for tipped employees and maintain a valid tip pool or sharing arrangement. However, only certain types of employees “tipped employees” may participate in a valid tip pooling or sharing arrangement. If other “non-tipped employees” participate in the tip pool, then the tip pool is improper and illegal.
Valid tip pooling and sharing arrangements: Who can and cannot participate?
An employer is allowed to maintain a valid tip pool or tip sharing arrangement among employees who customarily and regularly receive tips, such as:
- waiters and waitresses
- service bartenders
- counter personal
- bussers, and bellhops, etc
On the other hand, an employer will lose the tip credit benefit if tipped employees are required to share their tips with management and owners or employees who do not customarily and regularly receive tips, such as:
- cooks and chefs,
- laundry room attendants
If I participate in a tip pool or tip sharing arrangement, do my tips belong to my employer?
No! Your tips are YOUR property! Tips are the property of the employee whether or not an employer takes a tip credit under section 3(m) of the Fair Labor Standards Act. An employer is prohibited from using an employee’s tips, whether or not the employer has taken a tip credit, for any reason other than what is statutorily permitted under section 3(m) of the FLS, such as a credit against the minimum wage obligations to an employee, or in furtherance of a valid tip pool, which may only include employees who “customarily and regularly” receive tips. In addition, an employer may not retain or deduct money “tips” from a tip pool to cover walk-outs, breakage, cash register shortages, or other business costs and loses. Therefore, tips are the employee’s property and are never the property of the employer, regardless of an employee’s participation in a tip pool or tip sharing arrangement.
What to Watch for regarding your Tips!
- Participation of other non-tipped employees: Only employees who customarily and regularly receive tips can participate in the tip pool
- Managers and owners cannot dip into the tip pool
- Paying employee’s only their tips: Employees are entitled to the minimum wage of $2.13 an hour, plus all the tips earned.
- Retention of tips or improper tip deductions for walk-out, breakage, or cash register shortage. It is illegal for an employer to deduct for any of these items from a tip pool.
In conclusion, the tip laws are designed to ensure employees are paid a fair wage for their work. However, when an employer attempts to circumvent those laws, it could result in the employer owing its employees a huge amount of back pay. If you have questions about a tip pool, deductions, or other questions concerning your pay or employment issues, call the attorneys at Herrmann Law to discuss 817-479-9229 or submit your case online and we will contact you to discuss.