Can Salaried Employees Accept Tips?

The issue of who can and cannot receive tips has created a flurry of federal legislative changes since late 2017. The U.S. Department of Labor proposed changes to the Fair Labor Standards Act in December of that year, and the FLSA was officially amended a few months later. Then, additional changes were proposed in October 2019 and December 2019.

The U.S. Department of Labor defines a tipped employee as one who "customarily and regularly" receives tips each month in excess of $30. This applies primarily to the hospitality industry.

Businesses who employ tipped workers are required to pay them only $2.13 an hour in wages if that amount plus their tips works out to at least the federal minimum wage: $7.25 an hour as of 2020. Otherwise, the employer must make up the difference. For example, an employer would have to pay a worker an additional $2.25 per hour if their tips and the $2.13 base wage work out to only $5 an hour.

Assigning an employee's tips as wages in this way is referred to as a "tip credit" to the employer because the employer doesn't have to pay the employee the $5.12 difference – assuming the employee is collecting that $5.12 in tips. But this rule only applies to employees bringing in more than $30 a month in tips.

The debatable issue here is whether "back-of-house" staff, like managers and supervisors – who are often paid salaries or at least full minimum wage – are entitled to a share of tip pools collected by employees such as wait and bar staff. Most of these employees don't need those tips to earn a livable income or they're already receiving minimum wage, even if they do happen to bus a table or serve a drink once in a while.

The old law provided that employers could require their waitstaff to pool their tips and share them with other employees – although not with supervisors or managers, and employees have never had to worry about splitting tips with owners, which isn't allowed. This was the case whether the employer paid waitstaff full minimum wage or took a tip credit. The rule allowed "back-of-house" workers, such as dishwashers and cooks, to share in waitstaff tips, even though they might never come face-to-face with customers.

The legislative change proposed in late 2017 and passed in March 2018 provided that employers can only order waitstaff to pool their tips with back-of-house employees if they pay them full minimum wage without taking tip credits. The idea is that these workers are contributing to customer satisfaction even though they're being paid a salary or full minimum wage, but their overall incomes can be significantly less than those of waitstaff when adding on the sometimes sizeable tips waiters and bartenders receive.

The DOL sought to readdress this issue in late 2019. The October proposal seeks to allow employers to indeed take a tip credit while requiring pooling of tips if a tipped employee performs both tipped and non-tipped services. The rules don't change for employers who do not take a tip credit, and they still prevent managers, supervisors and owners from sharing in tips.

These legislative amendments apply only at the federal level. State laws can differ. For example, California, Oregon and Minnesota ­don't allow for tip credits to employers. They require that servers receive the full state minimum wage.

California, Montana, Minnesota, Alaska, Washington, Oregon and Nevada additionally prohibit employers from requiring that their tipped employees share their tips with back-of-house staff.

Of course, not everyone works in a restaurant, bar or other typically-tipped profession. These federal and state rules apply to the hospitality industry only. As a general rule, it's never okay for a public employee to receive tips, specifically postal workers, law enforcement personnel and teachers.

Additionally, the FLSA doesn't address exempt employees receiving tips because, by definition, exempt employees aren't covered by the FLSA.