Last year, the U.S. Department of Labor (DOL) issued final regulations that specify that employees’ tips are their sole property, regardless of whether employers take the tip credit. The regs also prevent employers from diverting employees’ tips into tip pools without informing employees beforehand.
The DOL recently gave the nod to national enforcement of the regs. This should serve as a timely reminder, since many teens and college students regularly earn tips during the summer. (Field Assistance Bulletin No. 2012-2)
Tips on tips. Under the Fair Labor Standards Act (), employees who customarily receive more than $30 a month in tips are tipped employees. For tax purposes employees who earn $20 or more are tipped employees.
Since tips are earned wages, the FLSA limits your control over them. For example, the FLSA allows you to pay tipped employees as little as $2.13 an hour in cash wages. The difference—up to $5.12—is the employer tip credit. But if employees don’t earn enough in cash tips, plus the tip credit, to equal the $7.25 minimum wage, you must make up the difference in cash.
You can establish a tip pool, and set the amount or percentage employees must contribute into it, but a valid tip pool must be limited to employees who customarily and regularly receive tips:
- Counter personnel who serve customers
A valid tip pool can’t include employees who don’t customarily and regularly received tips, such as dishwashers, cooks, chefs and janitors.
HEY, 9TH CIRCUIT, WE’RE TALKING TO YOU: The DOL is really aiming its tip enforcement guns at employers in the 9th Circuit—California, Nevada, Washington, Oregon, Alaska, Idaho, Montana, Hawaii and Arizona. In 2010, the 9th Circuit Court of Appeals ruled that an employer that didn’t take the tip credit could establish a tip pool that included dishwashers and cooks. Employers in these states should ensure that their tip pools don’t include any unauthorized positions.