I recently visited a busy North Carolina taproom. When ordering a beer, one employee took my order, another employee poured the beer, and a third employee brought it to the counter and accepted payment. After paying and adding a tip, I began wondering how these businesses allocate customer tips among multiple workers who serve customers. Under the federal Fair Labor Standards Act, the answer is relatively straightforward. For businesses that do not claim the federal tip credit toward minimum wage obligations, these tips can be pooled and distributed among employees who serve customers and customarily receive such gratuities.

However, North Carolina has a quirky state law that complicates this distribution. A provision of the North Carolina Wage and Hour Act states in part: "Tip pooling shall also be permissible among employees who customarily and regularly receive tips; however, no employee's tips may be reduced by more than fifteen percent (15%) under a tip pooling arrangement." Under this provision, an employee who believes that more than this proportion of their tips are being reduced through the pooling arrangement could file a lawsuit or administrative complaint against the employer.

In my taproom scenario, who can claim ownership over the customer tips? Are they allocated by implication among the three employees, or could the employee who accepts payment claim entitlement to the entire gratuity? North Carolina Department of Labor regulations issued under the statute do not provide helpful guidance. The statute and rules may have been enacted at a time when a single server handled customer interactions and when tipping counter workers was not customary.

In the absence of clear guidance, North Carolina employers subject to this tip pooling restriction could adopt a policy that evenly divides gratuities among all staff working behind the counter at a given time. However, this practice does not guarantee that it will not be challenged by a disgruntled employee. I am not aware of any litigation challenging these practices, but hospitality industry employers in the state would benefit from clarification and updating of the tip pooling restrictions.

For more information, please contact me or your regular Parker Poe contact. Click here to subscribe to our latest alerts and insights.