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Tip Pooling is one of the top ways to get sued for violations of The Fair Labor Standards Act (FLSA)

Independent Contractor vs Employer

Most restaurants rely on “the way it has always been done,” or the way their POS system is set up, to run a tip pool. Both methods are likely to get you sued, sooner or later, because “the way things have always been done,” or the way your POS system was set up, is not, necessarily, legal. As I have told countless clients, your payroll company, or POS company, setting up your system incorrectly, is not a defense to an illegal tip pool. The fact that other restaurants do the same tip pool you do, is irrelevant, most restaurants get it wrong and leave themselves open to lawsuits, and, recently, there have been a lot of lawsuits filed, over tip pooling.

            The first thing that employers get wrong is that they include untipped workers in the tip pool. Including someone that the law considers and untipped employee, in your tip pool, invalidates your tip pool for Fair Labor Standards Act (FLSA) purposes, unless you meet the exemption below. A tipped employee is someone who is not salaried, and directly serves the customer. https://www.dol.gov/whd/regs/compliance/whdfs15.pdf.

There are proposed rules issued by the Department of Labor to change this and the way that tipped employees are paid, for further information see, https://www.restaurantbusinessonline.com/workforce/new-tip-pooling-tip-credit-rules-proposed-dol.

            A rule went into effect in March of 2018 allowing back of house employees to be tipped as part of a tip pool. However, in order for an employer to use this exception, all employees in the tip pool must be paid the full state minimum wage, the employer may not take a tip credit. Seeing as almost all employers take a tip credit, we will not discuss this further, but more information is available at https://medium.com/@hello_5766/the-new-tip-pooling-laws-for-restaurants-what-you-need-to-know-in-2018-fec8e898b522

That brings up a lot of questions about who can be included. A bus boy is not included, neither is a bar back, however, under certain circumstances, bartenders can be included, and in other circumstances they cannot be. A tipped employee is someone who spends the majority of their time serving the customer, or at least enough to affect the customer experience. Hence, a hostess is not typically a tipped employee, but if that hostess also refills drinks, and helps serve food, they are a tipped employee. Runners can be tipped employees, but expeditors cannot. Kitchen staff are not tipped employees, unless you pay everyone in the tip pool the full state minimum wage, without taking a tip credit.  

A manager is never a tipped employee, the number one way that I see clients get tip pools wrong, is by including the manager in the tip pool. Whether you pay a manager an hourly rate, or a salary, they are untipped employees. So, to be part of the tip pool, someone has to be an hourly         employee, who significantly impacts the customer’s experience through directly serving the customer.

Once you establish who a tipped employee is, which you may need a labor lawyer to help you with, you must set up the tip pool correctly. You must track all tips in the strictest possible fashion. Many restaurants I see getting sued do not track cash tips, and that is part of the reason they are getting sued. It may be difficult to track cash tips, nearly impossible, but the law requires you to do it, and you can get sued for labor violations, and face issues with the IRS, if you do not.

Next, you also must make three things clear to the employee. First that if for any reason the employee does not get minimum wage under the tip pool, the employer will make up the difference. Second, that the employees are being paid as part of a tip pool, and how that tip pool works. Third, that the employee will not make less than they were tipped, except for any “tipouts” to tip pool employees. Literally, there is no protection greater than having a labor lawyer put this in writing and having the employee sign it, you also need to have your state’s version of the worker’s rights poster in a place where all employees will see it.

By: Joshua H. Sheskin, Esquire, M.A., Trial Counsel Lubell Rosen, 954-880-9500 jhs@lubellrosen.com.- Mr. Sheskin focuses his practice on both state, and federal, employment and business defense cases, including ADA, FLSA, EEOC, sexual harassment, and liability issues arising from business disputes.

Tipped Employees can still sue under the Fair Labor Standards Act (FLSA) depending on their tasks.

For about thirty years the Fair Labor Standards Act (FLSA) Rule has been that a tipped employee who receives less pay per-hour, because they are a tipped employee, must spend 80% of their time at work doing activities that are tip generating. This means 80% of the employees, time had to be spent on tasks directly related to serving the customer, thereby directly generating tips. Hence, napkin folding, “opening the restaurant,” and other tasks would need to be kept to less than 20% of a tipped employee’s time at work. In November of 2018 the Department of Labor rolled back this Fair Labor Standards Act (FLSA) guidance for tipped employees. However, courts have consistently held that the rule is still in effect, allowing cases to move forward against Buffalo Wild Wings, and Denny’s, as if the rule had not changed. The status of this rule, and how courts will treat it, changes constantly, and depends on the judge, because the Department of Labor rolling back this Fair Labor Standards Act rule for tipped employees was not done in the traditional way that agency rules change.

Whether one assumes that 80% of the time a tipped employee works must be spent on tipped activities to satisfy the Fair Labor Standards Act (FLSA), or less due to the rollback of the rule, what counts as a tipped activity is very specific and defined through hundreds of court decisions. Many activities that restaurants would normally consider tip generating tasks, are not tip generating tasks. It is difficult to know which tasks are tip generating, versus non-tip generating, without a Fair Labor Standards Act (FLSA) lawyer to guide you through the legal swamp that is tipped versus non-tipped tasks under the Fair Labor Standards Act (FLSA). For help in determining if your tipped employees are spending eighty percent of their time on tipped tasks, or if you have been sued by a tipped employee claiming to have done more than the allowed percentage of non-tipped tasks, call Joshua Sheskin at the South Florida Headquarters of Lubell Rosen. – Joshua H. Sheskin,Esq., 954-880-9500, jhs@lubellrosen.com