The Fair Labor Standards Act (FLSA) allows employers to require employees to pool tips with other eligible employees, and the rules of such arrangements depend on whether the employer pays a direct (or cash) wage equal to the full minimum wage to tipped employees, or not.
With traditional tip pooling, the employer that takes a tip credit can required tipped employees to contribute tips only to a tip pool that is limited to employees in positions that regularly and in the ordinary course of business receive tips, i.e. servers. In this arrangement, an employer must notify each tipped employee of any required contribution to the tip pool, can only take a tip credit for tips that each tipped employee ultimately receives, and cannot retain any of the tops for any other purpose. Employers may not receive tips from this type of tip pool and may not allow managers/supervisors to receive tips from the pool.
In a nontraditional tip pool, when the employer pays its employees a cash wage of at least the federal minimum wage ($7.25 as of posting) per hour, the employer can impose mandatory tip pooling that includes employees that do not commonly receive tips, i.e. dishwashers and cooks. All of the employees in the arrangement must receive a direct cash wage of at least the federal minimum wage for this arrangement to be legal. An employer still may not receive tips from the pool, nor may managers or supervisors.
When employers collect tips to administer through a tip pool, the employer is required to fully distribute any collected tips at the regular payday for the workweek, or, for those with a pay period of more than one workweek, at the regular payday for the period in which the particular workweek ends.
Important notes:
- If an employee does not receive enough tips to make up the difference between the direct wage payment (at least $2.13 per hour) and the minimum wage in each workweek, than the employer must make up the difference at the regular payday for the period in which the workweek ends.
- For employees that receive only tips and are paid no direct wage, the employer must comply with the requirements for taking a top credit and pay a direct wage of at least $2.13 an hour or pay a direct wage equal to the full minimum wage.
Note that where the state minimum wage exceeds the federal minimum wage, the state minimum wage applies. In Michigan, beginning January 1, 2024, the minimum hourly wage increased to $10.33 per hour, and the tipped employee hourly rate of pay increased to $3.93 per hour. There is pending litigation that may impact these changes.
For Michigan specific guidance: https://www.michigan.gov/-/media/Project/Websites/leo/Documents/WAGE-HOUR/WHD-99xx-Information-Sheets/WHD-9921-tipped-ee/MW_InfoSheet_Tipped_ee_9_25_06.pdf?rev=675c3cb63d774ab0beb15063260b0dda
