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Tip-Pooling: Are you in compliance with both Colorado and Federal law?

Jorgensen, Brownell & Pepin, P.C.

It is common practice among restaurants and other hospitality businesses to participate in tip-pooling. The act of tip pooling describes a procedure wherein all tipped employees put their tips together and the tips are then split amongst the employees. Despite the commonality of this practice, there are several legal discrepancies that many are unaware of.

While Colorado law may permit the participation of everyone in a tip pool, the Federal law does not. If you are only in compliance with Colorado law this could leave you open for potential suit under the Federal statutory requirements.

According to the Fair Labor Standards Act “FLSA”, managers and supervisors cannot be included in a tip pool. Outside of managers, supervisors, and employers, the determination of who can participate in the tip pool depends on whether or not the employer takes a tip credit. 29 U.S.C.S. §§ 201 et. seq.

A tip credit allows employers to pay tipped employees a wage lower than the federal minimum wage. The idea behind the tip credit is that tip income should bring the employee’s wages back up to the federal minimum wage. If an employer takes a tip credit, additional restrictions on who can participate in the tip pool apply, such that only those employees who customarily and regularly receive tips can be in the tip pool. Turner v. Millennium Park Joint Venture, LLC, 767 F. Supp. 2d 951 (N.D. Ill. 2011). In other words, only employees who maintain more than a de minimus interaction with customers as part of their employment and those employees who are ordinarily engaged in personal customer service may participate in tip-pooling. Employees who customarily and regularly receive tips might include waiters, waitresses, bartenders, bellhops, and counter personnel. If you take a tip credit, you cannot include people in the pool who don’t normally receive tips, such as dishwashers, cooks, chefs, and janitors. Pedigo v. Austin Rumba, Inc., 722 F. Supp. 2d 714 (W.D. Tex. 2010). The perfect example of a Federally permitted tip-pool is one wherein the waitstaff, bartenders, and bussers pool tips, however, if the kitchen staff is included in the tip pool and they do not maintain the required de minimus interaction with customers the employer may be at risk for a potential lawsuit. If an employer does not take a tip credit they may include tipped and non-tipped employees in the tip pool as long as the tipped employees are paid at least the full federal minimum wage. Platek v. Duquesne Club, 961 F. Supp. 831 (W.D. Pa. 1994).

If you own a restaurant or you work in a restaurant where tip-pooling is already implemented or if tip pooling is a consideration in the future, there needs to be a clear policy in place. Our knowledgeable and experienced attorneys have a wealth of knowledge on Colorado and Federal wage laws and can assist you in developing such a policy or explaining the ramifications of such a policy. If you have any questions about tip pooling and whether a policy is in compliance with both Colorado and Federal law please contact our office today.