FLSA PERMITS TIP POOLING WITH BACK-OF-HOUSE, BUT NOT MANAGERS OR SUPERVISORS
On March 23, 2018, President Trump signed the $1.3 trillion spending bill into law, avoiding a government shutdown. In doing so, however, the President also amended the Fair Labor Standards Act (FLSA) in a way that will affect employers with tipped employees.
Tip Pooling with Back-Of-House Employees Permitted
The 2,232-page spending bill amended the FLSA to permit back-of-house employees to share in tip pools. This change settles a long-standing debate over the 2011 Department of Labor regulations on tip pooling issued during the Obama Administration, which prohibited tip pooling arrangements that included non-tipped (back-of-house) employees.
Specifically, the FLSA amendment abolishes all provisions of the 2011 Department of Labor regulations on tip pooling that were “not addressed” by the amendment. Since the amendment did not specifically address any prohibition on back-of-house employees from participating in tip pooling arrangements, any such provisions are deemed ineffective, thereby returning to pre-2011 rules on tip pooling.
We previously discussed the 2011 Department of Labor regulations on tip pooling and the litigation that followed. You can read more about the court decisions and the Department of Labor’s efforts to rescind the 2011 regulations through the rulemaking process here.
Tip Pooling with Managers or Supervisors Strictly Prohibited
In addition to clarifying the back-of-house tip pooling issue, the bipartisan spending bill included specific language sought by workers’ rights groups to clarify that employers, managers, and supervisors were prohibited from sharing in tip pools, even if they provide services to guests.
The FLSA, as amended, states: “An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” The penalty for violating these rules includes restitution of the tips and tip credits taken and fines of up to $1,100 for each violation.
In guidance issued on April 6, 2018, the Department of Labor provided a definition of manager or supervisor for purposes of this new rule. A manager or supervisor is anyone:
- whose primary duty is management of the enterprise in which the employee is employer or of a customarily recognized department or subdivision thereof;
- who customarily and regularly directs the work of two or more other employees; and
- who has the authority to hire or fire other employees or who suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.
What About State Law?
As a Nevada employer, you may be wondering how this amendment applies to you and your tipped employees given the decision in Wynn v. Baldonado (2013). The answer is that the Wynn decision likely has no affect on how this amendment applies to you.
As you may recall, Wynn dealt with a tip pooling policy for table gaming employees, which included sharing tips between employees of different ranks. The Nevada Supreme Court ruled that the tip pooling policy did not violate Nevada law; the tips were distributed among Wynn’s employees and none were kept by Wynn itself. The Nevada Supreme Court did not address that the tips were being distributed amongst employees of different ranks, including employees who might be deemed supervisors or managers of other employees in the tip pool.
Wynn addressed tip pooling under state law, not federal law. Therefore, Wynn does little to clarify this issue under federal law.
The amendment to the FLSA places more restrictions on what an employer can do regarding tip pools including employees of different ranks. It specifically states that tip pooling arrangements that allow supervisors or managers to keep any portion of an employee’s tips are prohibited. Therefore, even though state law would allow such an arrangement, employers who had such arrangements in place would be in violation of federal law and subject to the penalties outlined in the FLSA.
Best Practices for Nevada Employers
NAE recommends that Nevada employers with tipped employees, who utilize tip pools or have tip sharing arrangements, do the following:
- Ensure no managers or supervisors participate in tip pooling, whether participation is voluntary or mandatory. If an employee works in both supervisory and tipped position, exercise extreme caution (and seek legal advice) when determining whether, and in what circumstances, to include that employee in the tip pool.
- Develop clear, written policies on tip pooling and ask participating employees to sign an acknowledgement confirming their understanding of the policies.
- Allocate tips among participants in a tip pool in a reasonable and equitable manner that reflects the amount of service employees provide to guests.
Please note, if you have employees who are subject to a collective bargaining agreement (CBA), the terms of the CBA will govern to the extent they address the tip pooling issue.
This issue will continue to evolve as we get answers to the questions noted above through court decisions and/or regulations. As always, NAE will monitor these decisions and keep you updated on the latest developments to ensure you remain in compliance.
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