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Feds issue new tip-credit pooling rules

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in Compensation and Benefits,Human Resources

Employers are now free 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 (DOL) 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.

Both the federal Fair Labor Stand­ards Act (FLSA) and Illinois minimum wage law allow employers to pay tipped employees an hourly wage less than the legal minimum wage.

The state’s minimum wage law allows employers to use a tip credit up to 40% of the hourly minimum wage. Illinois employers must pay the state minimum wage of $8.25 per hour.

The new DOL ruling specifies that employers that wish to take a tip credit must inform tipped employees of their hourly wages and the amount of the tip credit. In addition, they must notify employees that:

  • The tip credit will be no greater than the value of tips actually received.
  • The tip credit cannot be applied unless the tipped employee has been informed of the tip credit provisions of the FLSA.
  • Except for valid tip pooling, employees are entitled to keep all tips they receive.

The new regulation removes any limit on the amount of tips employers may require employees to share in a tip pool. Employers may not dip into the tip pool. Pooled tips must be shared only by employees.

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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