Changes to Federal Law on Tip Pooling

March 22, 2018. Back-of-house employees may now share in tip pools under federal law.

In March of 2018, President Trump signed a spending bill that includes an amendment to the federal Fair Labor Standards Act (FLSA). The amendment allows employers to pool tips and redistribute them among employees—including employees who do not customarily receive tips—as long as they pay employees at least the full minimum wage. However, employers will not be able to keep any portion of the tips or allow managers or supervisors to participate in the tip pool.

For many years, a 2011 Department of Labor (DOL) regulation strictly prohibited employers from including certain people in a tip pooling arrangement. Employers could not, for example, take any portion of an employee’s tips for themselves or allow managers or supervisors to share in a tip pool. Employers also couldn’t require employees to share their tips with “back-of-house” coworkers who did not customarily receive tips, such as cooks or dishwashers. The regulation was challenged through the courts, at least as it applied to employers that did not take a tip credit and paid employees the full minimum wage per hour. (A tip credit allows employers to pay tipped employees less than minimum wage if the employee earns enough in tips to make up the difference.)

In 2017, under new leadership, the DOL proposed a new rule that would removed tip pooling restrictions on employers, as long as employees received at least minimum wage. However, the proposed regulation was met with opposition, as many were concerned that the lack of restrictions would allow employers to pocket employees’ tips for themselves.

As a compromise, the FLSA has now been amended to prohibit all employers from taking any portion of an employee’s tips, or allowing managers or supervisors to participate in a tip pool, regardless of whether the employer takes a tip credit. Employers that violate the law must pay employees all tips wrongfully withheld and an equal amount in liquidated damages.

However, the remainder of the 2011 DOL regulation will not have any application when it comes to employers that don’t take a tip credit. This means that employers that don’t take a tip credit can require employees to share tips with back-of-house coworkers who don’t customarily receive tips. Employers that do take a tip credit, however, still may not allow back-of-house employees to share in a tip pool.

Some states might have more restrictive laws on tip pooling. See our state laws for tipped employees to learn more.

Effective date: March 22, 2018.