Two years ago, the Ninth Circuit held that employers may not share tips from tip pools to back of the house staff who aren’t in the “chain of service.” Last month, this rule was revised by federal law. This means that California employers in the restaurant, hotel, and other service industries where tips are common place, may now distribute tips to those who were previously excluded, such as cooks and dishwashers. This is a welcome change that many of my clients who own restaurants and hotels believe is the fairer rule.
Below is a recap on what this means for California employers:
- Tip pooling policies may now provide that back of the house employees can share in tip pools.
This means that tip pooling policies may now require tip pools to be distributed not only to bussers but also to cooks and dishwashers, for example. This practice was prohibited in the last 2 years.
- Certain employees are still prohibited from being paid from tip pools.
Owners, managers, or supervisors of the business may not share in tip pools. Employers should make sure that employees who direct the work of other employees such as shift supervisors, general managers, or anyone else who has the power to hire or fire employees do not get to share in tip pools. Employers may still choose to reward these employees for exceptional service or performance through a bonus but may not use tip pools to reward this category of employees.
- Employees must still be paid at least minimum wage without taking tips into calculation.
Although some other states and federal regulations allow employers with a tip credit towards minimum wage, this practice violates California wage and hour laws. California employers must pay employees at least minimum wage, plus any tips earned by the employees.
Businesses with tip pooling practices should have a written tip pooling policy that specifically outlines how tips are pooled and shared. Such written policies should clearly state that pooled tips will not be shared with owners, managers, or supervisors. If you would like to include other employees who were previously excluded from tip pools, revise your tip pooling policy to reflect this change.
It should be noted that the rules on tipping and tip pooling have changed multiple times. It is a business owner’s responsibility to know and comply with the local, state, and federal laws that apply to it. Unfortunately, the laws are constantly changing, and many employers find it difficult to stay informed of the various changes.
Schedule a call if you have questions about tip pooling or California employment laws on paying employees.
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