First, the back story: The Fair Labor Standards Act (FLSA) sets the rules for paying minimum wage and overtime. It allows employers to take a tip credit against its minimum wage obligations if certain conditions are met. One of those conditions is that tipped employees must be allowed to retain all of their tips. There is one exception to this – that employers can require employees to participate in a valid tip pooling arrangement.
There are various requirements for a tip pool to be valid but most importantly, the tips can only be shared with people who customarily and regularly receive tips. Typically, these jobs are in the front of the house.
The FLSA is silent as to whether these same restrictions apply to employers who don’t take a tip credit and instead just pay a full minimum wage. In 2010, the Ninth Circuit ruled that they don’t apply if you don’t take the tip credit. In 2011, the DOL issued regulations saying that they apply whether you take the tip credit or not.
The Tip Pooling Loophole
In 2017, the Trump Administration proposed a rule that would clarify this issue.
The rule sought to allow employers who pay a full minimum wage to include back of house workers in a tip pool. But the rule as proposed left open a potential loophole – that in giving employers control over the tips (under the expectation that they would use them to pay back of house workers) that the rule would have also allowed employers to pocket the tips if they wanted to.
This prompted an enormous uproar and ultimately the administration scaled back; the law would be revised to make clear that employers cannot under any circumstances keep any portion of their employees’ tips.Read More