The legal and operations impact of pooling staff tips
The legal and operations impact of pooling staff tips
30 JULY 2018 7:34 AM

The recent changes to the laws regarding tip pooling can be complicated. HNN spoke with experts to find out what hoteliers need to know.

REPORT FROM THE U.S.—Recent changes to U.S. law regarding who is eligible to participate in tip pooling will have an effect on the relationship between tipped employees and certain back-of-house staff, particularly in food-and-beverage outlets.

To understand what the changes mean requires some understanding of the context of how tip pooling and tip credits work and how minimum-wage requirements play into them.

The federal Fair Labor Standards Act requires employers to pay employees a minimum wage of $7.25 an hour, said Sylvia St. Clair, associate at Faegre Baker Daniels. But it also allows employers to take what is known as a tip credit in which a customarily tipped employee can be paid below the federal minimum wage—down to $2.13 an hour—as long as the tips retained by the employee bring the hourly pay equal or in excess to the federal minimum wage threshold. Some cities and states have set a higher minimum wage, which takes precedence.

The Department of Labor defines a tipped employee as someone who earns more than $30 in tips each month. Prior to its changing, the FLSA allowed employers to require their tipped employees to pool their tips together as long as they received minimum wage.

Changes to the law
Tip pooling saw its first major change under the Obama administration in 2011, St. Clair said. The adopted regulations stated managers could implement tip pooling among normally tipped employees who received full minimum wage, but not for those who do not customarily and regularly received tips, such as cooks, dishwashers, chefs and janitors.

Those who do not take the tip credit can include non-tipped employees in the tip pool so long as the employer pays the tipped employee at least the full federal minimum wage, she said. Those who don’t take the tip credit can include tipped and non-tipped employees, including the back-of-house staff

“Employers can require employees to share their tips with those not customarily tipped as long as the managers and supervisors aren’t part of the pool,” she said.

Tip pooling occurs more frequently in restaurants, but not as much in most other hotel operations, she said, however, many banquet departments engage in tip pooling. There is a question whether housekeepers could be defined as someone who customarily receives tips as part of their wage, and it’s a matter of whether they could make enough in tips.

Whatever actions employers take, they need to make sure their employees are paid properly, St. Clair said.

“You need to make sure that at the end of the day, employees who primarily receive tips are at least making the federal minimum wage or the state minimum wage if that is higher,” she said. “Meeting minimum wage is the No. 1 priority.”

A balancing effect
When prior regulations didn’t allow for sharing tips with back-of-house employees, it created imbalance among restaurant employees, which made it difficult for operators to attract talent for the back of the house, said Chris Bebo, corporate director of operations at Provenance Hotels. Provenance hasn’t implemented tip pooling, he said, but it’s cautiously optimistic regarding the recent changes and holding off for further guidance before taking any action.

“This kind of levels the playing field a little bit,” he said. “We want a team approach to service, in this case food service. Having the flexibility of offering tip pooling gives more of a sense of teamwork and esprit de corps.”

The front-of-house servers and employees make a good living, Bebo said, and they should, based on the amount of effort they put into their work. They are all professionals who have put time and effort into honing their craft, he said, and they create an aura of respectability.

The back-of-house is equally important, he said. Cooks and dishwashers work in unison with the front-of-house staff, he said.

“They’re at a great disadvantage by not being able to tap into a tip pool,” he said. “It creates an artificial divide between the front and back of house.”

Service is a team sport, Bebo said, and sharing tips has been a common practice historically. Front-of-house employees are generally in favor of recognizing the back-of-house staff for their efforts, he added.

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