Tip Pooling: Are You Following the Law?

Many states allow employers to require tip pooling.  In a tip pooling arrangement, all employees subject to the pool have to chip in a portion of their tips, which are then divided among a group of employees.  But be careful, and look before you leap!

The following is a brief survey of the applicable federal law and relevant state laws in New England regarding tip pooling.

Fair Labor Standards Act (FLSA)

The FLSA expressly permits employees to pool their tips.  Employer can even require employees to pool their tips.  Employers can also determine tip-pooling arrangement among employees in the tip pool.

There are, however, two exceptions: (1) A tip pooling arrangement is invalid if an employee must relinquish more than a “customary and reasonable” amount of tips to the pool, (but the law does not place any ceiling on the amount of tips contributed to a pool); (2) Only employees who customarily and regularly receive tips can participate in a tip pool (e.g., waiter, bellhop, busboy, counter personnel, and service bartender); by contrast, employees who do not customarily and regularly receive tips cannot participate in a tip pool (e.g., janitor, dishwasher, chef, cook and laundry room attendant).

As a general rule of thumb: whether an employee can participate in a tip pool depends on whether the employee’s occupation entails regular interactions with customers.  If yes, the employee can participate in a tip pool.  Courts have held that hosts and hostesses, and maîtres d’ hôtel can participate in a tip pool, but salad mixers and kitchen helpers cannot.

Employers, however, cannot participate in a tip pool.  An “employer” is “any person acting directly or indirectly in the interest of an employer in relation to an employee.”  Courts use the “economic reality test” to determine whether someone is an employer.  That test looks at whether the individual in question: (1) has the power to hire and fire employees, (2) supervises and controls employee work schedules or conditions of employment, (3) determines the rate and method of employees’ pay, and (4) maintains employment records. 

The greater number of these factors are present, the more likely an individual will be deemed to be an employer or agent of the employer and, thus, ineligible to participate in a tip pool (e.g., shareholders or board members of restaurant, general manager).

Massachusetts

Massachusetts does not outlaw tip pooling altogether.  It merely specifies who may participate lawfully in a tip pool.  An employer cannot require or permit a service employee to participate in a tip pool with non-service employees.  It does not prohibit, however, a tip pooling arrangement between service employees. 

However, a “service employee,” in part, means one who does not have “managerial responsibility.”  “Managerial responsibility” is not defined.  The better view on what constitutes “managerial responsibility” argues against making shift supervisors, who may themselves be non-exempt hourly workers, into people with “managerial responsibility” because such an approach would stretch that term beyond its intended meaning and possibly be unfair.

New Hampshire

New Hampshire is very straightforward.  A valid tip pool is one that (1) the employee “voluntarily and without coercion” agrees to participate in and (2) the employer does not require or control in any manner.  If the employee agrees to participate, the employer can administer the tip pool but cannot exercise any control over the manner in which tips are pooled other than for accounting and bookkeeping purposes.  In addition, anyone can participate. 

Connecticut

Connecticut is even simpler.  There is no Connecticut law on tip pooling.  Thus, employers should use the FLSA (see above) as guidance.

Tip Pooling is often a forgotten area of the law, but it is not that difficult to follow, and it will obviously protect you from liability.

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