Jeff Ruzal Quoted in “3 Pointers for Pooling Employees' Tips”

The last few months have featured changes to rules that govern how businesses pay their workers who earn tips, who may be paid less than minimum wage as long as gratuities carry their earnings the rest of the way. …

In light of the shifting regulatory environment, Law360 here provides three pointers for navigating tip pools.

Consider Mandating an Employer-run Tip Pool

Jeffrey Ruzal, an Epstein Becker & Green PC attorney who advises employers as head of the firm's hospitality service team, said he recommends businesses play a role in directing a tip pool, rather than leave it to workers to sort out among themselves.

"My view is that the better practice is for the employer to have some semblance of control over tip pooling," Ruzal said. "You want to avoid situations where an employee unilaterally decides to withhold certain amounts of tips from the tip pool, which could create some problems in the workplace."

Because those problems would fall to the employer to address, it's helpful to have management involved in operating the tip pool from the outset, Ruzal added.

"If you have an employer-mandated tip pool whereby the employer sets forth the parameters and creates parity among all of the tip-earning professionals … there's seemingly lesser chance that there will be issues with respect to governance around tip sharing and tip pooling," he said.

Be Transparent About How Tips are Redistributed

Transparency is a vital component of an employer-controlled tip pool, Ruzal said. Clear guidelines that say whether employees have to hand over some or all of the tips they receive and explain how money paid out from the pool will be divvied up can ensure everyone understands how funds are handled, he said.

"The methodology should be well documented, defined and prescribed so that there's no confusion over how the distribution system works," Ruzal said.

Part of the reason is to smooth employee relations, but another part is to safeguard the employer against claims that tips were mishandled, Ruzal said.

"If the employees don't understand what's happening with tips, or how the tips are being distributed or who's the recipients of the redistributed tips, that confusion, lack of clarity or ambiguity could result in risk for the employer," Ruzal said. "There could always be allegations that the employer is keeping the tips."

"If everyone follows the plan and all of the money is accounted for, that creates a much more defensible scheme for the business," he said.