Don’t Tiptoe into a Tip Pool: Navigate the mine field of tip pool regulation (Part 1 of 3: Dual Role Employees)

In Uncategorized by Caleb McCoy, J.D.

Managing a restaurant carries a host of obstacles (bad pun intended) and the legal landscape of tip pool regulations can often be too easily ignored. The complex web of rules, regulations, and decisions on tip pooling from the United States Department of Labor, state governments’ departments, and federal and state case law can seem too daunting a task to even begin, but ignoring any one critical point can be an expensive and costly consequence. Whether it is right or wrong, good or bad, the reality of our times is that the government has claimed an interest in ensuring all employees are fairly compensated for work performed for any employer, and therefore the government takes an interest in regulating the fair distribution of a tip pool. The government’s interest is particularly heightened here because a customer leaves a tip specifically for the serving staff, and importantly not for the benefit of restaurant.

So the next time you are sharing the tip pool or establishing rules for its distribution, consider some of the issues we present in this first part of three posts on tip pooling concerns:

Tip Pool Sharing for Dual Role Employees

Often, to make the most efficient use of an employee, restaurants require some employees to perform dual roles, such as servers who also wash dishes or perform other duties that don’t directly contribute to the increase (or decrease) in the customers’ tips. So what is a fair method of sharing a tip pool with these employees?

Generally, you must take a fair estimation of the percentage of time an employee contributes to tip-generating duties and non-tip-generating duties. This is a detailed fact analysis that differs broadly across the food service industry, so consulting with an attorney is advised. After a fair estimation is made, you must share a pro-rata portion of the tip pool with the employee based on the percentage of time spent on tip-generating duties. In other words, if you have one full-time waiter and one dual role server who spends only 50% of her time in tip-generating duties, you must share the tip pool in a way that the server receives 50% of the amount the full-time waiter takes home. So if there is $150 in the tip pool at the end of the night, the waiter would be entitled to $100, and the server would be entitled to the $50.

One important exception to this general rule comes from the 8th Circuit of the United States of America. In the case styled Fast v. Applebee’s Int’l, Inc., 638 F.3d 872, 880 (8th Cir. 2011), the appellate court upheld a United States Department of Labor rule on dual role employees. Essentially, the rule finds that if a dual role employee spends 80% or more of his time performing tip-generating duties, then that employee must receive a full share of the tip pool. So, using the above example, if you have one full-time waiter and one dual role server who spends 85% of her time in tip-generating duties, then the server and waiter should take equal shares from the tip pool. In other words, if there $150 in the tip pool at the end of the night, the waiter and the server are each entitled to $75.

As always, there are other methods and options for altering or even avoiding the obstacles these general rules and regulations create, so we encourage anyone with questions concerning these matters to consult an attorney with experience in the food service industry. We will continue with Part 2 in this series of tip pool regulations in our next blog post.