What Happens to Tipped Employees if Tip-Pooling Becomes Legal?

Tip-pooling has recently been a buzzword in Tampa Bay news, and not necessarily in a good way. Tip-pooling is the practice of an employer having the freedom to allow tip sharing between tipped and non-tipped employees. Tip-pooling would decrease the wage disparity among workers at an establishment, but the prospect doesn’t please all employees – in fact, many local servers and bartenders say they would quit their jobs if the tip-pooling rule passes through legislation. Here’s an idea of what the future could look like for employees under the proposed rule.

Details of the Proposed Legislation

In December 2017, the U.S. Department of Labor (DOL) published a news release describing tip-pooling. The release states that the new rule would change the current tip regulations of the Fair Labor Standards Act. The new rule would give businesses the option to enforce tip-pooling, or splitting tips among all employees at the establishment. The business owner would also have the option of keeping a portion of the tips him/herself, for the company. Here’s what we know about the proposed rule:

• Only employers that pay full minimum wage could enact a tip-pooling rule
• The rule would not apply to employers that claim a tip credit
• The rule would give employers flexibility in how they set up and enforced the rule
• Employers in other industries could also adopt similar tip-pooling strategies

The DOL states that it is “unable to quantify” how the regulatory change would affect employee turnover and customer tipping behavior. News stations throughout Tampa tested the waters and found a largely negative reaction to the proposed rule, with food service workers stating they couldn’t afford to split their tips between tipped and untipped workers in the front and back of the house. Many employers in Tampa also said they’re against the practice, and wouldn’t introduce tip-pooling if the rule passed.

The Reality of Tip-Pooling for Employees

If tip-pooling becomes legal, tipped employees could find themselves having to split the tips they individually earned with the rest of the staff – tipped and untipped – and possibly the manager of each shift. All tipped employees would pool their tips at the end of the shift, and then the total amount would be divided among all workers clocked in for the shift. Therefore, each employee would receive the exact same amount in tips – whether they interacted with the tipping customer or not.

In essence, tipped workers would take home much less in tips, while untipped workers would suddenly receive tips. In an establishment that engages in tip-pooling, however, tipped employees would be making at least the federal minimum wage. This amount is currently $7.25 per hour. Everyone would get at least minimum wage, and everyone would split all accumulated tips for the day. For many servers who depend on tip money to earn a living, go through school, and raise kids, the new legislation does not appear to bode well for their futures.

How Could Tip-Pooling Change the Hospitality Industry?

The fact sheet on the proposed legislative change states that the rule would lift the restrictions employers currently have when it comes to the use of tip pools, permitting them to distribute tips from customers to a larger pool that includes all workers, tipped and untipped. The proposed rule could increase the income of back-house employees, encouraging them to provide better customer service.

The rule would give employers flexibility in deciding pay practices for all workers, as well as close the wage gap between employees that affect the customer experience. Supporters of the rule believe tip-pooling could enhance customer service, by encouraging tipped and non-tipped workers to both optimize customer care, instead of just tipped employees. Since 2011, there has been a lot of litigation involving the current tip-pooling prohibition. This newest proposed rule could change things for employees in certain industries forever. For legal questions concerning unfair practices in the workplace our Tampa employment lawyers at Florin Gray are available for free consultations.