Category Archives: Tips

Federal Tip Credit and Tip Pooling Basics

The Fair Labor Standards Act (FLSA) outlines federal tip credit and tip pooling provisions.

What is tip credit and tip pooling under Federal Law?

  • Under a valid tip credit policy, employers are able to pay tipped employees an hourly rate that is less than minimum wage – provided that the tipped employee’s hourly wage plus tips equals or exceeds the required minimum wage.
  • A tip pooling agreement requires tipped employees to deposit a portion of their customer tips into a common “tip pool” to be shared with other employees. A valid Tip Pooling arrangement must meet all the requirements of the FLSA provisions (and any state requirements) for tipped employees.

Continue reading Federal Tip Credit and Tip Pooling Basics

REMINDER: Massachusetts Employers Have New Requirements For Tipped Employees

As we reported earlier (in NEW LAW: Massachusetts to Increase Minimum Wage with Grand Bargain), the Massachusetts’ “Grand Bargain” legislation increased the state minimum wage and the “service  rate” (tip credit) that tipped employees could receive.  Effective January 1, 2019, the minimum wage in Massachusetts increased to $12 per hour and the “service rate” increased to $4.35 per hour.

Under Massachusetts law, employees who make at least $20 per month in tips can be paid a “service rate” provided that (1) they are notified in writing that they will be paid the service rate and (2) the employee’s total wages (the service rate plus all tips earned in the shift) equal or exceed minimum wage. Continue reading REMINDER: Massachusetts Employers Have New Requirements For Tipped Employees

NEW RULE: DOL Eliminates “80/20” Tip Credit Rule

On November 8, 2018, the US Department of Labor issued a new Opinion letter (Opinion Letter FLSA 2018-27) wherein the DOL rescinded the 80/20 tip credit rule.  Under this rule, employers were not able to use the tip credit for tipped employees who spend more than 20% of their time performing allegedly non-tip generating duties.

In lieu of this rule, the DOL has stated that ““We do not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.”

NEW LAW – Washington DC Elimination of Tip Credit Repealed

Back in June 2018, Washington DC voters passed Initiative 77, which was intended to gradually eliminate the “tipped employee minimum wage” (or tip credit) by 2026.  That Initiative has officially been repealed.

Earlier this month, the D.C. Council passed a measure to overturn and repeal Initiative 77.  This means that employers in Washington DC will be able to continue paying their tipped employees a lower minimum wage than regular hourly workers.

Currently the tipped minimum wage in Washington DC is $3.89 per hour.  This minimum wage is slated to increase as follows: Continue reading NEW LAW – Washington DC Elimination of Tip Credit Repealed

FLSA Requirements for Tip Pooling Quietly Changed

Buried in its 2,232 pages, the 2017 Omnibus Budget Bill contains a short provision making important amendments to the Fair Labor Standards Act as it relates to tip pooling arrangements. These amendments may have immediate and important ramifications for employers and may require changes to existing tip pooling arrangements in order to remain in compliance with the law.

The Long and Short of It

First, the bill makes it unlawful for employers, including managers and supervisors, to keep any portion of tips received by their employees, regardless of whether or not the employer takes a tip credit. Previously, the FLSA was vague on whether an employer could retain a portion of employee tips when the employer did not take a tip credit (i.e., when the employer paid the employee at least minimum wage not including tips). This update to the law brings the FLSA in line with previous Department of Labor (DOL) regulations that prohibited employers from sharing in employee tips at any time.

The second significant change brought about by the bill is that the FLSA now permits employers to require tipped employees to share their tips with back of house employees when the employer does not take a tip credit.  Thus, under the FLSA, employers who pay their tipped employees at least the full federal minimum wage may now require tipped employees such as severs and bartenders to share their tips with employees who are not customarily tipped, such as dishwashers, cooks, and bussers. This amendment invalidates previous DOL regulations prohibiting employers from requiring such tip sharing with non-tipped employees.

DOL Guidance Continue reading FLSA Requirements for Tip Pooling Quietly Changed

New York Employers — Don’t Forget About These Other New Year’s Eve Wage Increases …

As New York employers are undoubtedly aware, New York’s minimum wage is increasing on December 31, 2017 as follows:

Size/Location of Employer Minimum Wage as of 12/31/17
“Upstate” employers (excluding fast food employees) $10.40 per hour
“Downstate” employers (excluding fast food employees) $11.00 per hour
“Small” NYC employers (excluding fast food employees) $12.00 per hour
Fast food employees outside NYC $11.75 per hour
“Large” NYC employers (excluding fast food employees) $13.00 per hour
Fast food employees inside NYC $13.50 per hour
·         “Upstate” = employers in all counties “upstate” from the greater NYC area

·         “Downstate” = employers in Nassau, Suffolk, and Westchester Counties

·         “Small” NYC employers = employers with 10 or fewer employees

·         “Large” NYC employers = employers with 11 or more employees


However, New York employers may be surprised to learn about the other types of wages that are accompanying the increase in minimum wage – specifically:

  • An increase to the salary threshold for exempt employees; and
  • An adjustment to the amounts employers can deduct from employees’ wages for items such as tip credits, uniform allowances and meals

New Salary Threshold for Exempt Employees

Effective December 31, 2017, the salary threshold for exempt employees will increase as follows:

Size/Location of Employer Salary Threshold as of 12/31/17
“Upstate” employers $780 per week
“Downstate” employers $825 per week
“Small” NYC employers $900 per week
“Large” NYC employers $975 per week


Adjustment to Permissible Deductions

Under the New York wage orders (those applicable to hospitality employers, employers in “miscellaneous industries,” and employers in the “building service industry”), employers are permitted to make deduct from employees’ wages for items such as tip credits, uniform allowances and meals.  Starting December 31, 2017, those amounts have been adjusted dependent on employer location and size.  It is recommended that all employers review these summaries to determine how much they can deduct for a uniform allowance and claim as a meal, lodging and tip credits.

Connecticut Employers – Do You Consider Your Delivery Drivers Eligible for a “Tip Credit”?

If you do, you must cease this practice immediately. In a recent case (Amaral Brothers, Inc. v. Department of Labor), the Connecticut Supreme Court found that employers cannot take advantage of a “tip credit” for delivery drivers in order to meet the state minimum wage.

Under Connecticut wage and hour law (Conn. Gen. Stat. § 31-60(b)), a tip credit may be taken for “persons, other than bartenders, who are employed in the hotel and restaurant industry . . . who customarily and regularly receive gratuities.” This law allows certain businesses (e.g. hotels and restaurants) to pay their “service employees” an hourly rate below the state minimum wage and “credit” a portion of the tips earned by the employee towards the required minimum wage.

In this case, a group of pizza delivery drivers had filed a class action lawsuit against their employer claiming that the employer improperly took a “tip credit” from their wages and, as a result, failed to pay them minimum wage in accordance with the law.

The employer, on the other hand, claimed that the employees were “service employees” and, as a result, eligible for the tip credit.

Connecticut law defines “service employees” as “any employee whose duties relate solely to the serving of food and/or beverages to patrons seated at tables or booths, and to the performance of duties incidental to such service, and who customarily receive gratuities.” The employer argued that delivery drivers were service employees because their job duties were similar to that of a waiter carrying food to a customer at a table.

The Connecticut Supreme Court disagreed. Instead, the Court found that delivery drivers do not fall within the scope of the tip credit because “the legislature did not intend that employees such as delivery drivers, who have the potential to earn gratuities during only a small portion of their workday, would be subject to a reduction in their minimum wage with respect to time spent traveling to a customer’s home and other duties for which they do not earn gratuities.”

Take home for employers

For those employers who employ delivery drivers, this ruling may impact how those employees are paid. If your company currently applies a “tip credit” to these employees, that practice must stop immediately. In addition, to the extent that your waitstaff also perform delivery services, the time spent performing those services is not eligible for a tip credit.

DC’s Proposed Minimum Wage Increase Includes Tipped Employees

Earlier we reported that DC had passed legislation (the “Fair Shot Minimum Wage Amendment Act of 2016”, DC-B712) to increase its minimum wage for hourly employees. (Note: this increase is pending Congressional approval).

Included with this increase in hourly minimum wage is an increase in minimum wage for tipped employees. If approved by Congress, the minimum wage for tipped employees will increase from $2.77 per hour as follows:

  • July 1, 2017 — $3.33 per hour;
  • July 1, 2018 — $3.89 per hour;
  • July 1, 2019 — $4.45 per hour; and
  • July 1, 2020 — $5.00 per hour.

This new legislation was approved by the DC mayor on June 29, 2016 and was transmitted to Congress on July 8, 2016. The projected effective date of this new law is November 15, 2016 – assuming the new law is approved by Congress.

9th Circuit Confirms Not Everyone Is Allowed In The Tip Pool

Tip Pooling: A business’s practice of dividing customer tips among the staff.

While it is clear that management employees are not permitted to participate in a tip pool, there has been an ongoing debate as to whether the tip pool can be extended to those working in the “back of the house” (i.e. dishwashers, cooks, chefs, janitors, etc.) or if the pool is limited only to those working in the “front of the house” (i.e. servers, bartenders, etc.)

In 2011, the US Department of Labor issued a rule stating that stating that tips are the sole property of the tipped employee and only those employees who customarily and regularly receive tips (like waiters, waitresses, bellhops, counter personnel, bussers, and bartenders) can participate in a tip pool. In other words, “back of the house” employees were excluded from the tip pool because they do not customarily and regularly receive tips.

After this rule was published (in July 2012), several West Coast restaurant and lodging associations filed a lawsuit (Oregon Rest. & Lodging Association v. Perez) against the DOL arguing that the rule was invalid because the DOL had exceeded its statutory authority by issuing that rule. In 2013, a federal district court invalidated the DOL’s new tip-pooling regulations (thereby allowing “back of the house” employees to be included in the tip pool).

The DOL appealed the district court’s ruling and, earlier this year, the 9th Circuit issued its decision and held that the DOL’s tip pooling rule was valid.

What does this mean for employers?

For those employers who have included “back of the house” employees in a tip pool, they must rethink how their tip pool operates, as these employees can no longer be included in the traditional tip pool. Some alternatives:

  • Exclude the “back of the house” employees from the tip pool;
  • Include a separate line on guest checks for “back of the house” employees and have a separate tip pool for those employees;
  • Eliminate the mandatory tip pool for all employees;
  • Eliminate tipping altogether and charge all customers a mandatory service fee.