Article written by:
Molly Waite, CPA
Tax Senior Manager
The Federal rules regarding employee tip pooling under Section 203(m) of the Fair Labor Standards Act (FLSA) were amended as part of the Consolidated Appropriations Act (the “Act”) signed into law by President Trump on March 23, 2018.
The new Act allows tip sharing between tipped and non-tipped employees (e.g. servers and cooks, respectively) when the employer pays tipped employees at least the full FLSA minimum wage and does not claim the tip credit.
In addition, the Act prohibits an employer from retaining tips received by its employees for any reason, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit. An employer who violates this rule will be liable to the employees for the amount of tip credit taken and the tips that were unlawfully kept, for an equal amount in liquidated damages, plus a civil penalty not to exceed $1,100 for each such violation as determined by the U.S. Department of Labor (DOL).
State laws can often prohibit practices otherwise allowed under the FLSA, so the removal of tip pooling restrictions under the FLSA may not impact the treatment in every state. In Ohio, the state law at this time does not specifically address tip pooling.
For further discussion regarding the employee tip rules, please contact your GBQ tax advisor at 614.221.1120.