Q&A with Crystal Johnson
Attorney discusses tip policies
Q: In this season of holiday tipping, can you address what types of payments are appropriately categorized as “tips” for purposes of calculating a “tip credit” toward the federal minimum wage?
A: Under federal law, a tip is a sum presented by a customer as a gift or gratuity in recognition of some service performed for him or her. A tip is received from a customer or guest without the influence of an employer. Service charges, such as mandatory gratuities are not considered tips. Importantly, tips must come in the form of a monetary value. In-kind gifts such as flowers or jewelry should not be classified as tips.
Q: Who is a "tipped employee" for purposes of allowing an employer to take a "tip credit" against employee wages?
A: Federal law defines a “tipped employee” as one who engages in an occupation in which he or she customarily and regularly receives more than $30 per month in tips. This means that every month of the year, a “tipped employee” will at least receive $30 per month in tips. Given the holiday season, it is important for employers to note employees who make more than $30 in tips on certain holidays and events, but do not regularly receive that amount in tips, are not classified as “tipped employees.”
Q: What employees can share in employee tips received as part of a valid “tip pooling” arrangement?
A: Tip pooling is permitted by federal law as long as employees engage in the practice voluntarily, or employees only are required to pool with fellow tipped employees in an amount that is customary and reasonable. Under the law waiters/waitresses, bellhops, counter personnel who serve customers, server helpers, and service bartenders are all occupations that may participate in a tip pool. Employees who do not regularly engage with customers such as dishwashers and cooks do not qualify under the regulations as a “tipped employee.” For purposes of federal law, distributing 15 percent of the tips to a tip pool is customary and reasonable. In other words, the tipped employee must retain at least 85 percent of the tips he or she receives from customers, and pool the 15 percent of the tips.
Q: What is “tip sharing” and how does it differ from “tip pooling”?
A: Federal law permits mandatory tip pooling, but does not permit mandatory tip sharing; the latter is strictly voluntary. This is different because employees can voluntarily share their tips with cooks, service helpers or other employees, but cannot be required to share with those employees, and may share in the amount that the employee chooses. And an employee may include some but not all who assist in the service. For instance, an employee can chose to share his or her tips with the busboy, but not include their bartender. Employees can share any amount they voluntarily chose to with other employees. These amounts do not have to be equal across the board like tip pooling and are not limited to 15 percent of the tips received.
Q: What should you do as an employer if an employee complains of the “tip pooling” or “tip sharing” policies?
A: Employers should explain in writing any tip-pooling or tip-sharing program to their employees and have the employee acknowledge the program before his or her employment. Hopefully these measures will reduce potential complaints relating to tip-pooling and tip-sharing programs.
PAULA BURKES, BUSINESS WRITER