Is Your Restaurant Sharing Tips Properly? Three Questions You Might Have

Who has their hand in the tip jar? Certainly not the people in charge anymore.

Recently, the owner of a small business asked our firm if a manager performing the duties of a server on an understaffed day would be able to keep the tip they received or share in the tip pool. Unfortunately, for the manager, she was not legally allowed to.

The situation some may find regrettable is a consequence stemming from a provision squeezed in Congress’ massive spending bill, which was passed by lawmakers and signed by President Donald Trump in the spring. The owner’s inquiry is a reminder that people in the restaurant industry should familiarize themselves with the new rules implemented by the Tip Protection Act of 2018.

Here are three questions you might have:

What are the changes?

The act really is just an amendment to 1938’s Fair Labor and Standards Act and attempts to protect tips earned by employees. Changes during the Obama administration had caused confusion and pushback by owners, while the new amendment was seen as a compromise and had bipartisan support in Congress – though aspects of the legislation remain foggy.

The main takeaways from the amendment:

• Employers, managers and supervisors are prohibited from keeping tips received by their employees, regardless of whether the employer takes a tip credit.
• The regulations that barred tip pooling when employers paid tipped employees at least the full minimum wage and do not claim a tip credit shall have no further force or effect.
• Employers are no longer prohibited from allowing employees who are not customarily and regularly tipped – such as cooks and dishwashers – to participate in tip pools, even if an employer is already paying full minimum wage and not claiming a tip credit.

 Why are managers and supervisors lumped in with employers?

While the law is somewhat vague on this point – not to mention, managers and supervisors aren’t clearly defined in a Department of Labor bulletinproviding guidance on the amendment – it appears to come down to the issue of payment. In the case of our small business client, we determined if a manager is paid as such – regardless of the duties they are performing – they should not keep tips.

This can be a frustrating situation, especially for a business with few employees and little discrepancy between a manager’s and employee’s wages. Factoring in tips, an employee could make more than the manager, despite them performing the same duties in a given shift. It may seem somewhat unjust, but it’s simply the practicality of the restaurant business.

What are the penalties?

Steep and risky.

It’s not provocative to say the hospitality industry doesn’t always adhere to the rules. Depending on the restaurant’s size, especially, informal agreements between owners and employees may make life easier on all parties. But there is a danger to such bending of the rules, and the price of getting caught is not negligible. The act says anyone who violates the new subsection could face a penalty of up to $1,100, as well as liability to the employee or employees and an additional amount as liquidated damages if their tips were retained.

The Next Steps

The regulations can be viewed as a positive step to protecting employees’ tips and clarifying previous statutes, but further action by the Department of Labor may be needed. For example, the amendment does not specifically address employees in a “dual jobs” role, such as when someone works part of a shift as a dishwasher and part as a server. Do they still share in a nontipped employee pool?

The new guidelines don’t fit every situation perfectly, so don’t be afraid to ask for legal advice. One thing is certain, however: tips don’t belong in management’s hands. For the better in many situations, and the worse for some unfortunate few.