Employers are now free under federal law to set the percentage of employee tips that can be placed in a tip pool. In years past, several court decisions conflicted with the U.S. Department of Labor’s position restricting the amount of tips an employer could require to be pooled.
The ruling comes as part of a new regulation clarifying the tip-pooling issue and establishing notice requirements for employers that use a tip credit for tipped employees.
But Minnesota employers need to be aware of a crucial difference between federal and state laws. The federal Fair Labor Standards Act () allows an employer to pay a tipped employee an hourly wage less than the legal minimum wage.
Minnesota state law, however, bars any type of tip credit. The state statute specifically states that tip credits may not be used “towards payment of the [state] minimum wage ….” Minnesota employers must pay the federal minimum wage of $7.25 per hour for most jobs. (Some businesses are not covered by the FLSA.)
State law also bars employers from requiring employees to pool their tips.
But the new federal regulations now apply to operations you may have in other states.
The new federal regulations remove any limit on the amount of tips employers can pool. The regulations also require that pooled tips may only be distributed to employees who are part of the pool. Employers may not take any for themselves.
Before establishing any type of tip pooling, or to understand how your current tip-pooling scheme is affected by state and federal laws, contact your attorney.
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