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Are Your Tips Drowning In An Illegal Pool?

by | Aug 24, 2022 | Employment Law, Federal Law Update, Wage: Tipped Employees |


What is a tip pool?

Best Wage and Hour Lawyer Answer: An employer creates a “tip pool” when they combine some or all of the tips given by customers to tipped-wage employees like servers or bartenders, and then redistribute this money by some set percentage to those employees. (Best Law Read: How Do Tip Pools Work?; How Does A Tip Credit Work?).

Are tip pools legal?

Best Wage Theft Attorney Answer: Tip pools are not illegal per se (meaning they are not automatically illegal). This is different from an employer not paying you the correct rate for tipped vs non-tipped work (see Ohio’s New Minimum Wage Law: What Does it Mean For Me?); employees are still receiving tips, but this adds an extra step. An employer can require employees to share tips in a tip pool, if each employee in the tip pool customarily receive more than $30 per month in tips. See 29 C.F.R. § 531.54. Our wage and hour attorneys here at Spitz have written in depth about tip pools in the past, because of how certain tip pools are allowed under the Fair Labor Standards Act (“FLSA”) while others are not. For example, managers, owners, and customarily non-tipped employees cannot share in this tip pool. (Best Law Read: Can My Manager Ever Share In The Tip Pool? Best Wage Lawyer Reply!; Is Your Employer Sharing In Your Employee Tip-Pool? If So, They Owe You Wages).

What qualifies as a tip?

Best Tipped-Employee Pay Lawyer Answer: While this question may seem simple on its face, what is and is not a tip isn’t always black and white. While our wage and hour attorneys tackled the issue of service charges a while ago, a recent federal court decision gives us reason to circle back to this issue. (Best Law Read: Top FLSA Lawyer Reply: Can My Job Withhold Service Charges Separate From My Tips?).

In Nelson v. MLB Hotel Manager, LLC 2022 WL 2733720 (11th Circuit July 13, 2022), the Eleventh Circuit Court of Appeals faced this very same question. In Nelson, a server sued her former employer, claiming her employer violated the FLSA by creating a tip pool for a mandatory service charge. The restaurant charged a mandatory 20 percent “service charge” on every customer’s bill. Nelson argued this service charge was functionally a tip, and by sharing this charge in a tip pool with management, her employer violated the FLSA.

The Eleventh Circuit cited their previous ruling in Compere v. Nusret Miami, LLC, 28 F.4th 1180 (11th Cir. 2022). In Compere, the Eleventh Circuit described the two critical features of what qualifies as a tip: (1) the customer must be the one to decide if they are going to give a tip at all, and (2) if the customer does in fact decide to leave a tip, the customer must be the one who decides the amount. This must be “determined solely by the customer” in order to qualify as a proper tip. See Compere, citing 29 C.F.R. § 531.52(a)).

In Nelson, the mandatory service charge was not determined solely by the customer; it was a decision made by Nelson’s employer to set a mandatory 20 percent service charge on all orders. Because the employer decided to implement this service charge along with its percentage, what an employee receives from the service charge pool can be used to factor into an employee’s wages or overtime calculation under the FLSA.

While the former employee in Nelson was not successful in bringing her claim, this situation differs from a scenario where an employee is given tips directly by a customer. An employee’s tips are not part of the calculation of their hourly rate or their overtime calculation. But remember, the minimum wage for tipped employees is less than that for non-tipped employees (see Ohio’s New Minimum Wage Law: What Does it Mean For Me?, No Wage Violation Is Too Small To Pursue)

What Should I Do If I feel My Tips Are Being Taken Unfairly?

Waiters, waitresses, servers, bartenders, valets and other tipped employees depends on tips to live. If you feel your wages are not being calculated correctly, or even stolen from you in violation of the (FLSA) or Ohio Fair Labor Standards Act, contact the attorneys at Spitz, The Employee’s Law Firm today. Our wage and hour attorneys will provide you with a completely free and confidential initial consultation. (Read: What is the Spitz No Fee Guarantee?; Why Having Skilled Employment Attorneys Is Critical). The wage and hour lawyers at Spitz will provide you with the best options for your overtime, minimum wage and other pay dispute situations. If you even think that you may be entitled to overtime pay that you are not being paid, it is best to call our top wage lawyers now.

Disclaimer:

The materials available at the top of this tipped wage violation, wage and hour web page and at this employment law website are for informational purposes only and not for the purpose of providing legal advice. If you are still asking, “Can my boss take my tips?”, “Does my job have to pay me for all the tips I received?”, “Am I in a legal tip pool?” or “What do I do if I’m not getting my full tip credit?”, the your best option is to contact an Ohio wage attorney to obtain advice with respect to FLSA questions or any particular employment law issue. Use and access to this employment law website or any of the links contained within the site do not create an attorney-client relationship. The legal opinions expressed at the top of this page or through this site are the opinions of the individual lawyer and may not reflect the opinions of The Spitz Law Firm, Brian Spitz, or any individual attorney.