A Refresher Dip into the Tip Pool

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The United States Department of Labor (DOL) is increasing its scrutiny of tip pooling practices.  An inappropriately administered tip pool can result in its invalidation, which can in turn result in liability to the employer for unpaid wages.  To ensure a safe tip pool, consider the following:

1.     Notify employees in writing of the tip credit arrangement.  For example, you can make a notation on the pay stubs, include an acknowledgment in a new hire packet, or post a notice near the time clock.  The key here is to provide adequate notice to employees and retain proof of this notice.  

2.     Keep management out of the tip pool.  Remember that only employees who "regularly receive tips" can participate in a valid tip pool.  This usually excludes management-level employees.

3.     For employees who perform tipped and non-tipped jobs (such as an employee who serves as both a waiter and a dishwasher depending on the shift), remember that the tip credit is only available for the hours spent by the employee in the tipped position.  Carefully tracking the hours spent in each position is crucial to ensure the tip pool is properly distributed.

4.     The tip credit you claim as an employer cannot exceed the amount of tips received by the tipped employee.

5.     Understand what positions can participate in the tip pool.  This is perhaps the hardest issue to determine, and the answer can vary by state, and even by DOL region.  You should know, for example, what position the local DOL representatives take on positions such as food runners and assistant hosts.

6.     Distribute a written policy regarding the tip pool distribution.  Employees should be notified of which positions participate in the tip pool, and the corresponding tip pool percentages for each position.

DOL audits can be costly and time-consuming.  A properly administered tip pool will keep employees happy and keep the sharks at bay.


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