Is Your Club Tip Pool Legal?

Is Your Club's Tip Pool Legal?

Is Your Club Tip Pool Legal?

Posted by Christine Fox on May 4, 2016 7:46:38 AM

Hospitality.jpgDoes the Department of Labor (DOL) have the authority to enforce rules related to tip pooling if the employer does not take a tip credit?  Yes.  According to the recent ruling in the federal Ninth Circuit Court of Appeals, employers cannot require tipped employees to share their tips with un-tipped employees. 

In a tug o’ war case between Department of Labor and the Western States Restaurant Industry in the 9th Circuit Court, a judge panels’ 2-1 surprise decision ruled in favor of Department of Labor’s authority to enforce its 2011 regulation that prohibits employers tip pooling with those who do not customarily receive tips. This means, “back of the house” employees cannot be included in tip pools; such as, kitchen workers, managers, and /or any other employees who are not customarily tipped.  The recent ruling concludes a five year debate over whether DOL has the authority to enforce rules related to tip pooling when an employer does not take a tip credit.

The Fair Labor Standards Act allows an employer to use an employee’s tips to offset a significant portion of the federal/state minimum wage, known as a “tip credit”.  In 2010, the Ninth Circuit Court ruled employers who do not take tip credits, did not apply to DOL’s tip pooling regulation.  Since, employers have been able to use tip pools for both tipped and un-tipped employees’ benefit without being out of compliance with DOL.  

Many states allow tip credits, although they are already illegal under Oregon and Washington law, and now DOL will be looking closely at any tip pooling arrangements of employers operating in Alaska, Arizona, California, Hawaii, Idaho, Montana, and Nevada.

employee_cost.jpgDOL Tip Pool Requirements: The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), bussers and service bartenders.

The National Restaurant Association and its co-plaintiffs’ are considering an appeal to a full 11-judge panel of the U.S. Supreme Court.  In the meantime, employers in the 9th Circuit states should evaluate their current tip pooling arrangements to ensure they’re in compliance with DOL’s regulations. 

Due to the multitude of emerging wage and hour changes proposed to be implemented this year and DOL’s increase of enforcement to conduct targeted investigations within the Hospitality Industry; Club Management's approach to HR administration can no longer be “if” we’re investigated and instead, needs to be “when” an investigation occurs, how to respond? 

It is highly encouraged to seek professional HR or wage and hour council to begin the laborious process of reviewing every job description, worker classification, and schedules; take time to audit compensation plans, overtime and tip pool policies to ensure you are up to date on your best defense against litigation…your club employee handbook.

The time to consider an HR Strategy at your Club has passed; now is the time to implement an HR Strategy! 

Our HRO Service… We assist each ClubPay HRO client with an initial assessment of their current HR practices and procedures to ensure we work as a partner for future growth.  To address the diverse needs of each Club HRO client we start the assessment with a custom employee handbook and build from there to determine what, if any future advanced HR support will be required.  Our HRO platform ensures that every client receives not only compliance protection, but also provides an opportunity to take advantage of our advanced Club HR Consulting services.

Topics: DOL,, Tip Pool Policy

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