The Fair Labor Standards Act of 1938 (FLSA) allows an employer to take a tip credit toward its obligation to pay a minimum wage to tipped employees. Since tips are the property of the employee, an employer is prohibited from using tips for any reason other than as a credit or in furtherance of a valid tip pool. A valid tip pool is a sharing arrangement among employees who customarily and regularly receive tips, such as waitresses and service bartenders. A valid tip pool may not include employees who do not customarily and regularly receive tips, such as cooks and dishwashers.
In 2010, the Ninth Circuit Court of Appeals ruled that the FLSA does not restrict an employer’s use of its employees’ tips when the employer has not taken a tip credit. Thus, an employer that does not take a tip credit could require its employees to participate in a tip pool that included individuals who do not customarily and regularly receive tips, such as cooks and dishwashers.
Following this ruling, the Department of Labor (DOL) amended its regulations to set out its interpretation of the FLSA’s limitations on an employer’s use of its employees’ tips when a tip credit is not taken. According to the DOL, a tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit. So even where a tipped employee receives direct wages from the employer of at least the minimum wage, the employee may not be required to turn over their tips to the employer. Trade groups have challenged the DOL’s interpretation by asking a court to declare the regulation unlawful. But for now, this is the DOL’s position. The Department says it will enforce that position nationwide. If you have any questions relating to this matter, contact Brad Smelser, a lawyer in our Consumer Fraud Section, at 800-898-2034 or by email at Brad.Smelser@beasleyallen.com.
Source: www.dol.gov and www.lexology.com
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