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DOL considering changing rules for distribution of pooled tips

The U.S. Department of Labor is considering an important rule change. It is mostly geared toward expanding the group of people who could participate in tip-sharing pools, but it could have a surprising secondary effect. If passed as currently written, it would allow employers to simply keep all tips received.

Under a 2011 Fair Labor Standards Act rule, businesses like hotels and restaurants can create tip pools. When tips are pooled and redistributed to the employees who received them, each employee gets an average of all the tips brought in that shift. This ensures that the tips are distributed more or less equally among all the tipped workers.

However, when employers pool tips, the rule requires them to be redistributed only among "front-of-the-house" staff who regularly and customarily receive tips. The tips pool cannot be expanded to "back-of-the-house" workers such as cooks, dishwashers and janitors. This has been a source of litigation, as some employers would like to boost the income of back-of-the-house employees by including them in the tip pool.

Also, employers may only have tip pools when they pay their tipped employees a straight minimum wage or more. They may not take a "tip credit," which means applying some or all of the workers' tips to the overall minimum wage they are entitled to earn.

The new rule would still require employers to pay a straight minimum wage when pooling tips. It would also allow employers to expand the pool to include back-of-the-house employees. However, because of the way the rule is written, it would also allow employers to expand the tip pool to include anyone else, including itself. And, the tips could be claimed entirely by the employer.

Naturally, this has resulted in a great deal of opposition to the new rule. In fact, some have accused the DOL of intentionally hiding information that shows many employers would indeed confiscate all employees' tips.

One thing to keep in mind, however, is that many state laws are more protective than this rule. For example, New York Labor Law Section 196-d prohibits employers or their agents from appropriating, whether directly or indirectly, any tip or gratuity left for an employee.

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