Tip sharing in restaurants: What does that really mean?

The recent ROI-NJ editorial, “Why tip sharing really is tip stealing,” paints the restaurant and hospitality industry as a conglomerate of unscrupulous business owners. The editorial is factually incorrect and prejudicial to the industry. On the contrary, we are an industry of philanthropy; our businesses are the go-to resource for many community organizations looking for sponsorships and benevolent contributions.

First, let’s address the fact that the proposed federal regulation on tip sharing by the Department of Labor is still in the comment stage of administrative procedure — the response by some has been strident, amid accusations of wage theft and worse.

It should be understood, however, that the sharing of tips has been permitted long before these regulations were proposed. While it is an established principle of wage and hour policy that tips are the property of the employee, it is also well-established law in most jurisdictions that employers may take a “tip credit” against the payment of minimum wage to tipped employees. Under this system, the tip credit is normally shared with others in the chain of service, such as front-of-house employees, servers, busers and bartenders — not managers, supervisors and owners.

Even under regulations from President Barack Obama’s administration, tip pooling was expressly permitted, provided that all front-of-house staff received the federal tipped employee minimum wage of $2.13. Additional tip money would bring them up to or above the overall federal minimum wage. According to the Wage and Hour Division’s fact sheet on tipped employees under the Fair Labor Standards Act, although an employee must retain all tips earned, a valid tip pooling or sharing arrangement among customarily tipped employees (e.g., waiters, bellhops, bartenders) is permitted. A valid tip pool may not include those employees who do not customarily receive tips (e.g., dishwashers, cooks, chefs, janitors).

In the Fourth and Tenth Circuit cases, these courts went even further by ruling that tips could be shared among all workers, provided that the employer paid the full minimum wage to its employees before tips were shared.

Again, it should be repeated that all New Jersey tipped employees must make the mandated $8.60 minimum wage. If a tipped employee doesn’t make enough in tips, the restaurant owner makes up the difference.

(READ MORE from ROI-NJ on the proposed regulation.)

Arguably, a state law may “nullify” federal law if the state law is considered more generous. I believe that, although the current state law concerning tip sharing may be challenged in court, it will prevail.

No one wants to allow employers to take tips from their staff. Tips should not go to owners, managers and the like. That’s an unethical business practice, and not what the DOL ruling is trying to accomplish. The aim is to allow a percentage of tips to be given to dishwashers and kitchen staff to acknowledge their contribution to guests’ dining experiences. Tips belong to the hourly employees that provide the guest dining experience. This should be included in the final regulation of the DOL ruling.

To suggest that tip sharing is tip stealing is off-base and prejudicial.

The New Jersey Restaurant & Hospitality Association is based in Trenton.