We have been getting a steady stream of questions from employers lately about tip pooling: who can participate, who cannot, and what happens when the lines blur. Here is a practical breakdown of where federal law stands. The Fair Labor Standards Act is clear on this: tips are the property of the employee who receives them. Congress reinforced this in 2018 by amending the FLSA to explicitly prohibit employers, managers, and supervisors from keeping any portion of employee tips, regardless of whether the business takes a tip credit. Violations of this rule can be expensive.

One distinction that’s worth knowing involves mandatory service charges. These include automatic 10% service charges that might be applied to the end of a bill depending on what was purchased or the size of the party. These are legally different from tips. Those belong to the employer and can be distributed however the business chooses, including to managers. If the customer has discretion over whether and how much to tip, it is a tip. If the charge is automatic, different rules apply.

Job titles do not control the who-is-the-manager analysis, and the Department of Labor looks at the employee’s authority and responsibility. Specifically, whether the person has real authority to hire, fire, discipline, or direct other employees. A shift lead or shift supervisor who mostly waits tables may still qualify as a tipped employee if their supervisory duties are minimal and this is simply a more senior employee who has been employed for a long period of time. 

If your tip pool policy hasn’t been reviewed since 2018, now may be a good time to take a look. Confirm that any exclusions are based on actual job duties and responsibilities rather than titles alone, and if you have working managers who perform tipped work, get clarity on where they fall before assuming they can participate in a pool. 

Click here to subscribe to our latest alerts and insights.