The Controversy over Tip Pools

Tip pools have proved a controversial topic, especially “nontraditional” tip pooling in which employers distribute pooled money among workers both in traditionally tipped roles, like wait staff, and those in non-tipped occupations such as kitchen staff. Such arrangements are permitted under Fair Labor Standards Act regulations if the employer pays employees at least the federal minimum wage. If an employer does not pay the federal minimum—and instead takes a “tip credit” toward its minimum wage and overtime obligations—that employer may only include employees who customarily and regularly receive tips in a tip pooling arrangement.

But note that, in New York, the law provides that only employees who perform, or assist in performing, personal service to customers at a level that is a principal, and a regular part of their duties may receive tips.  These include wait-staff, counter personnel who serve food or beverages, bus persons, bartenders, barbacks, food runners, captains who provide direct service, and hosts who greet and seat guests.

The move to allow for nontraditional tip pools under the FLSA was solidified under the Trump administration, which issued a final rule in 2020 that granted employers the ability to do sounder the FLSA provided that they do not take a tip credit. In 2021, the Biden administration allowed some components of the final rule to take effect but withdrew and modified others. For example, the Department of Labor clarified that while managers and supervisors may not receive tips from tip pools, they are not prohibited from contributing to mandatory tip pools.

Most U.S. adults in a recent Pew Research Center survey said that the fairest way to distribute tips in a restaurant setting is to allow each server to keep all money they receive in tips, as opposed to a tip pooling arrangement. Industry lobbies have supported efforts that allow for back-of-house employees to be included in tip pools, arguing that such regulations “bring parity to back-of-house workers who are also contributing to the overall customer experience,” as the association stated in a 2020 press release supporting the Trump-era final rule. However, workers and their advocates may oppose nontraditional arrangements, arguing that the arrangements can result in front-of-house staff losing out on tips or lead to wage theft.

If you have any questions about your rights as a restaurant worker, please contact the attorneys at Pechman Law Group at 212-583-9500. We have recovered over 30 million dollars on behalf of workers who have been cheated out of their overtime and tips or have been subjected to other unlawful pay practices.