As we previously reported, the recent federal budget legislation includes a new amendment to the Fair Labor Standards Act that resolves a dispute over tip pooling practices. The law overrules a 2011 Department of Labor regulation that prohibited employers from requiring that tipped employees share gratuities with other employees who do not traditionally receive tips. However, under the new legislation, supervisors and managers cannot participate in the tip pools.

Earlier this month, DOL’s Wage and Hour Division issued a Field Assistance Bulletin that addresses two questions left open by the new legislation. First, DOL adopts the same definition for supervisors and managers as that used under the executive overtime exemption under the FLSA. A manager or supervisor is someone whose primary duty involves management of a department or subdivision of the company, who supervises two or more employees, and who at least has the ability to make recommendations regarding hiring, firing, and other important employment changes.

Second, the bulletin makes clear that tip pools that follow these exclusions are legal under the FLSA. This means that employers are permitted to begin requiring pooling of tips for distribution to non-supervisory personnel such as bussers and cooks. Employers should remember to check relevant state laws to make sure that their pooling practices comply with local requirements. For example, North Carolina law limits the amount of tips that can be diverted to the tip pool to no more than 15 percent.