In December of 2017, the topic of tipped employment was in the spotlight due to a rule proposed by the U.S. Department of Labor (DOL) that seeks to change tip regulations under the federal Fair Labor Standards Act (FLSA). Under this proposed rule, employers would be allowed to implement tip pools, in which all tips would be divided among tipped employees and those employees who do not traditionally receive direct tips, such as restaurant cooks and dish washers.

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Although this proposed legislation could equalize the pay discrepancy between traditionally tipped employees and employees who are not tipped but nevertheless contribute to overall customer service, many labor advocacy groups and organizations vocalized concerns over such a law. The reason for the concerns was that this type of law would allow employers to use “tip skimming,” meaning that they would legally be allowed to share in the tip pool. This would allow employers to divert tips away from employees and into their own pockets.

Who Is a “Tipped Employee”

According to DOL definitions, tipped employees are workers who are “in an occupation in which [the employee] customarily and regularly receives more than $30 per month in tips.” This occupation includes not only wait staff, but also others in the service industry such as bartenders, hairstylists, manicurists, and hotel bellmen and housekeeping staff.

Under federal law, employers can pay tipped employees a wage of $2.13 per hour if the tips received plus the wage equal at least the federal minimum wage of $7.25 per hour. Some states require that tipped employees be paid a higher minimum wage than the federal minimum or be paid the state minimum wage before tips. Michigan’s employment laws, for example, require employers to pay tipped employees a minimum cash wage of $3.52 per hour, which is above the minimum wage of $2.13 per hour required under the FLSA. Although state laws vary, all states must pay at least the federal minimum of $7.25 per hour in compensation to tipped employees.

What the Future Holds for Tip-Pooling

The proposed rule may not become law anytime soon. This is because the Trump administration backed away from it in the spending bill that Congress recently passed, which stated that federal law would be revised to make it clear that employers — and the owners, supervisors and managers of the employing entity — cannot keep any portion of the tips earned by their employees.

Employers will be allowed to implement tip pools among traditionally tipped and non-tipped employees as long as they pay all their employees the regular minimum state wage. Thus, tipped employees should be aware that legally their tips can be shared with other non-tipped employees, such as those who work in the back of a restaurant, but not with upper management.

The attorneys in Sommers Schwartz’s Employment Litigation Group investigate allegations of wage theft to determine whether workers’ rights are being violated, and bring class action litigation against employers to recover unpaid wages. If you believe you are a victim of wage abuse, please contact us today discuss your situation and your right to potential damages.

Charles Ash, IV

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Charles Ash, IV

Charles R. Ash, IV is a Shareholder in Sommers Schwartz’s Complex Litigation groups. A substantial portion of Rob’s practice is devoted to collective and class actions arising under the Fair Labor Standards Act (FLSA) and similar state laws.

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