DOL Tip pooling rules upheld in court - How it affects your business

simplicityHR DOL Tip Pooling Rules
An increasing minimum wage has meant a boost in labor costs for employers throughout Hawaii. Service industry employers, who have a significant portion of their workforce receiving wages through tips, have been looking for new ways to compensate their employees in the face of these rising costs. For some, this has led to expanding tip pools to include back-of-the-house workers, like cooks and dishwashers, to help flatten the disparity of pay between service and non-service employees. However, a recent ruling on tip pooling processes is forcing companies in this industry to once again reevaluate their compensation practices.

The Ruling
Until just recently, the tip pooling arrangements of the Fair Labor Standards Act (FLSA), and who it applied to was a grey area. All that changed on February 23, 2016, when the Ninth Circuit Court of Appeals voted to uphold the validity of the Department of Labor’s 2011 ruling that makes it illegal for an employer to require tip pools that include non-service employees, even when the employer does not take advantage of a tip credit. The Ninth Circuit, which holds jurisdiction over 15 federal districts including Hawaii, ruled 2-1 in the case.
Though this decision signifies a success for tip earners, it once again forces companies to consider how to compensate employees in light of growing minimum wages and healthcare costs.

What does this mean for Hawaii employers?
Since the DOL ruling applies to all employers – regardless of whether a tip credit is taken – it’s imperative that companies revisit their tip pooling arrangements to eliminate non-tipped employees from mandatory pools. Hawaii law considers a tipped employee as anyone who “customarily and regularly” receives more than $20 a month in tips and where the combined amount of wages and tips is more than the applicable minimum wage (Section 387-2, Hawaii Revised Status).

One Hawaii business is taking a new approach to staying compliant with tipping and tip pooling policies—in fact, they’re avoiding it altogether. A recent Hawaii News Now story reported that Urban Bistro, a newly opened eatery in Keeaumoku, is Honolulu’s first restaurant to implement a no-tip policy. Some argue that removing tipping creates a stable, more collective workforce – employees get paid the same whether they work a slow Monday afternoon or a busy Friday evening shift.

Talk with your legal counsel or contact one of our helpful HR Consultants at 791-4900 to discuss the changes this ruling will bring on your company. However you choose to move forward, whether that’s raising wages of non-tipped employees or doing away with tipping altogether, the fact remains that employers are once again faced with the growing price of doing business in Hawaii.

This article is for general informational purposes only and does not constitute legal advice. Readers should first consult their attorney, accountant or advisor before acting upon any information in this article.