Restaurant Employee Tipping Pools May Be A Recipe For Disaster

July 18th, 2014

ELM Tip Polls FLSA

Recently a local seafood restaurant has been reported to have paid out more than $40,000 in a settlement with two employees in a dispute over back pay. More specifically, involving the practice of employee tip pooling.

According to Lagniappe : The suit claimed that the restaurant failed to meet the requirements of an exemption to the Fair Labor Standards Act, pertaining to tip employee credits. The suit says the servers were owed wages related to a system known as a tip pool operated by the restaurant, which forced them to share tips with employees who didn’t directly interact with customers. The suit argued the tip pool was invalid because it included oyster shuckers and kitchen staff, who didn’t interact with customers on a regular basis.

Click here to see a detailed timeline and explanation of the local collective lawsuits alleging that a restaurant engaged in overtime violations and/or illegal tip pooling under the Fair Labor Standards Act by Barry Johnson Parker at  Maynard Cooper & Gale PC.

Do you use the practice of tip pooling?
Is your restaurant compliant with Federal and Alabama labor laws concerning tip pools?
Are you concerned that these new lawsuits could effect your business?

At ELM, we are looking into this very complex issue to be able to fully service and advise our restaurant and food service clients. Our early investigation has revealed a couple of tips to help you navigate this new wage and payroll issue.

9 Tips to minimize your risk with restaurant tipping pools, potential overtime, and FLSA issues:

  1. Know the Fed Rules for on how your business should handle tips.
  2. Know the Alabama State Rules on how your business should handle tips.
  3. Define your payment structure, in writing, to every employee.
  4. Assess your current payment structure – who is a tipped position vs. who is not.
  5. Make sure tips are distributed to only employees and not to anyone that would be considered an employer
  6. Be able to document and verify if a employee does 20% or more of non tipped work.
  7. Keep records of all tips and make these records, and any company policies on tipping, available to employees.
  8. Eliminate/minimize any subjectivity on policy and time a tipped employee is doing non-tipped duties.
  9. Possibly look at eliminating sidebar positions that could cause a tip pooling Issue.

We feel this is just the start of this complex tip pooling issue and we promise to keep you in the loop when new developments happen.  For now err on the side of caution. If you have any payroll, tipping pools, potential overtime, or FLSA issues please consult with ELM or your attorney for advice before you find out you are named in a similar collective action.


FYI: News You Can Use
Tip laws for Alabama Department of Labor
All employees subject to the pool have to chip in a portion of their tips, which are then divided among a group of employees. An employee can’t be required to pay more into the pool than is customary and reasonable, and the employee must be able to keep at least the full minimum wage. (In other words, if the employer takes a tip credit, the employer can count only the tips the employee gets to take home against its minimum wage obligation. (per

Tip laws for Federal Department of Labor
According to the federal Department of Labor, only employees who regularly receive tips can be part of the pool. Employees must receive notice of the tip pool. Employees can’t be required to share their tips with employees who don’t usually receive their own tips, like dishwashers or cooks. And no employers are allowed in the pool: Tips from a tip pool can’t go to the employer or, in some states, managers or supervisors. (per

To make an appointment or to get more information on payroll issues like this, visit, call the office at 251.470.0700, or email Joe Collins at

Follow ELM on LinkedIn

Like ELM on Facebook

Follow ELM on Twitter


Resources: For More Information on Tip Pools
The website Fair Employment Legal Update provided details on New York State law concerning how tips must be handled. On Jan. 7, 2011, it stated in part: “When tip sharing or tip pooling … employers must keep records of all tips and make these records, and any company policies on tipping, available to employees.”
the New York State Department of Labor says about how businesses are required to handle tips. It states: “… to be acceptable under law, a tip pool ‘must be completely voluntary, initiated by the employees themselves with or without the knowledge of management, and not made part of the terms of hire or conditions of continuing employment.’ This means that an employer may not be involved in a tip pool — other than that of a ‘ministerial’ or administrative function of ‘distributing tips charged on credit cards according to a formula devised solely by the affected employees.’” It further states: “… a restaurant owner cannot determine whether or not he wants to be a ‘pooled house’ (for tips) — it is up to the employees only.”



Share This Post

previous post: Restaurants Beware: Tipping Pools & FLSA Collective Suitsnext post: LEGAL VIEW: Employees And Your Social Media Policy