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Is your company tip jar in compliance with federal laws?

Companies that allow tip jars need to be careful to follow very specific laws to maintain it legally and interpersonally. To avoid trouble with wage rights groups and other federal institutions, you should revisit it regularly.

Do you rely on a tip jar (or a tip pool) as part of your employees' regular wage? Do you know how the federal tip credit applies to the tip pool?

What are federal wage laws concerning tip jars?

The Fair Labor Standards Act protects tipped employees. These are usually waiters, servers, counter personnel and other customer service attendants. These employees may also receive tips from a tip pool.

Employers of tipped employees can claim a tip credit under FLSA section 3(m) to a maximum of $5.12 per hour (minimum wage $7.25-minimum required cash wage $2.13). However, you can only do this if you can show that the tipped employees earn at least the minimum wage when direct/cash wages and the tip credit are combined. When they don't, you'll have to make up the difference as their employer.

Federal laws regarding tip pools include:

· Employees are permitted to make their own sharing arrangement regarding the tip pool.

· The FLSA does not require a maximum percentage or contribution to tip pools.

· You must notify tipped employees if there is a required tip pool contribution amount.

· You may only take a tip credit for the total amount each employee receives after the tip pool is distributed.

· A tip pool is only split among employees who are typically tipped by customers directly.

Tip distribution and awarding is a complicated and delicate process. When employees do not understand minimum wage laws and general business practices, they can become frustrated and make accusations of wage theft.

If your employees are having difficulty maintaining professionalism over the tip jar, or misunderstand their rights, you may need the help of an experienced legal professional. They could help review your case and provide mediating services or legal representation in court.

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Kenneth J. Sargoy
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