A long legal battle to allow tip pooling among front and back of house employees has finally been resolved. The new federal budget bill amended the Fair Labor Standards Act (FLSA) to allow employers who do not claim a tip credit to pool tips among all employees.
The FLSA originally restricted tip pooling to only directly tipped employees, excluding non-directly tipped employees, such as cooks, bussers, and hosts. However, it was commonly interpreted to apply only to employers who used tip credits. Tip credits allow employers to combine tips and an hourly wage to arrive at minimum wage compensation. This interpretation was affirmed in 2010 by the 9th Circuit Court of Appeals.
In 2013, the 9th Circuit Court reversed their position, spurring a 5 year legal battle that was scheduled to be resolved this year by the Supreme Court. The new amendment allows employers not taking a tip credit to pool tips among all employees except managers. Employers can refer to the management duties test in the Executive Exemption section of the FLSA to determine if their employee is considered an exempt manager.
A handful of states, including Oregon and Washington, have long banned tip credits, requiring employers to pay their employees minimum wage for all hours worked in addition to tips earned. Tip pooling among all employees as been a common practice in these states, with the Oregon Restaurant and Lodging Association leading the battle to make the practice legal. Employers in these states can now rest easy after years of contradictory rulings by the courts.