On December 18, 2024, the DOL issued opinion letter FLSA2024-02, reaffirming its position that managers and supervisors are prohibited from participating in tip pools under any circumstances.
Tip pooling is a common practice in the hospitality industry where employees contribute any tips received into a pool at the end of a shift and then, at some point thereafter, divide the tips amongst those participating in the pool. This is a permissible practice under federal law—albeit, with some exceptions. One notable exception is that, under the Fair Labor Standards Act (FLSA), “[a]n employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips.” 29 U.S.C. § 203(m)(2)(B). That is true regardless of whether the employer pays its tipped employees at least the federal minimum wage of $7.25/hour and takes no tip credit. Id.; see 29 C.F.R. § 531.54(b); DOL Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (FLSA).
In its recent opinion letter, the DOL was asked whether “an individual who holds at least a 20-percent equity interest in the business and manages and supervises the bartenders,” but “also tends bar to ‘regularly engage with the customers,’” could participate in a tip pool along with other bartenders who receive tips but for whom the employer does not take a tip credit. The DOL stated that the individual could receive and keep tips he receives from a customer for service he “directly and solely provides.” However, the individual cannot keep any portion of tips received “if it is not possible to attribute a tip solely to the service the individual provides”—and therefore, the individual may not participate in a tipped pool with other bartenders.
The DOL’s rationale is simple: as an owner of the business and someone who is “actively engaged in managing the bartenders,” the individual qualifies as a “manager or supervisor” under 29 U.S.C. § 203(m)(2)(B). Accordingly, under no circumstances may the individual retain any portion of other employees’ tips, whether directly or through a tip pool.
The DOL’s conclusion in the letter is not surprising. It is, however, a good reminder to employers that (1) managers or supervisors should never retain any portion of other employees’ tips, even if in good faith, and (2) any tip-related practices should always be reviewed in connection with applicable federal, state, and local law to ensure compliance.
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