Restaurants and other businesses in which employees customarily receive tips are subject to complex federal, state, and local legal requirements mostly meant to protect workers’ earnings. One area of regulation involves tip pooling.
What is a tip-sharing or tip-pooling arrangement?
In a tip-sharing arrangement, tipped workers put their tips into a pool for redistribution among certain workers, which can include both tipped and not-tipped employees. The idea is to “share the wealth” with workers who contribute to the customer experience, such as the contributions of chefs and other restaurant staff, who do not serve customers directly.
Kentucky prohibits required tip pooling
Kentucky law forbids an employer from requiring its tipped employees to participate in a tip-sharing arrangement. In Kentucky, only voluntary tipping pools are permissible.
An employer may communicate to its workforce that a voluntary pool exists and provide the details of participation. Participants in a voluntary pool may ask their employer to maintain an account for the pooled funds, but the employer has the option of whether to do so. If an employer establishes such a safekeeping account, the employer must absorb any related expenses and keep the account separate from other business funds. Participants must also have the right to examine account records.
Federal developments
Tip pooling is currently in the media because, in October, the Department of Labor proposed new rules governing tip-sharing arrangements under the Fair Labor Standards Act. The proposed regulations would set new standards for employer-required tip-sharing arrangements.
Because Kentucky’s ban on mandatory tip pools provides greater protections to tipped employees, the state ban would stand in place of any federal law that allows mandatory pooling. Any local law that is even more protective should also be heeded, such as a complete ban on tip sharing.
The proposed federal regulations, if adopted, may still be relevant to Kentucky employers as they impact tip credits toward minimum wage calculations for employees that perform a mix of tipped and non-tipped duties and increase federal monetary penalties for employers that illegally keep tips their employees earned.
An experienced employment law attorney can provide guidance on appropriate tip-pooling arrangements and help employers stay up-to-date on the latest regulatory changes affecting the restaurant and hospitality industry.
