Jeffrey H. Ruzal, Member of the Firm in the Employment, Labor & Workforce Management practice, in the firm’s New York office, was quoted in Law360 Employment Authority, in “3 Takeaways from DOL's New Tip Pool Rules,” by Jon Steingart. (Read the full version – subscription required.)

Following is an excerpt:

The U.S. Department of Labor's new regulations that lift restrictions on pooling tips among workers give new life to Fair Labor Standards Act provisions that have been on the books for decades, employment lawyers told Law360. ...

Jeffrey Ruzal, who advises employers at Epstein Becker Green PC and leads the firm's hospitality practice group, said the rules give businesses freedom to decide that letting back-of-house staff share tip pools makes sense. Everyone is part of a team that contributes to guests' experience, including people customers don't directly interact with.

"To the extent that an employer decides that it does not want to take a tip credit from its front-of-the-house staff … then the employer has greater flexibility of allowing back-of-the-house employees to participate in a tip pool," he said.

"This does not in any way detract from the strict prohibition on management keeping the tips," Ruzal added, noting that the new rules incorporate the longstanding test for whether someone is ineligible for overtime pay because they're a manager. "It's just the matter of expanding the group of employees to whom they can be distributed." ...

If the rules take effect, one consideration employers will have to weigh is that an employer that forgoes a tip credit can require tipped employees to pool their tips and give untipped employees a cut. An employer that takes a tip credit can distribute tips only among tipped employees.

In making that decision, business operators have a tradeoff to weigh, Ruzal said. Boosting back-of-house workers' earnings by including them in a nontraditional tip pool means they must pay everyone — front and back of house alike — at least standard minimum wage and cannot use tips to offset their wages, Ruzal said.

"If an employer wants to pursue the nontraditional tip pool, they're losing the benefit of the tip credit," Ruzal said.

The employer should also consider the impact on employee morale if sharing tips is seen as diluting front-of-house staff's earnings or boosting some staff's income by cutting into other workers' bottom line, Ruzal said.

"I think the best practice in making that change is striving to achieve full transparency with the employees so that everybody understands the reason the employer is doing it," Ruzal said. "It's important to provide that rationale to the employees so that they understand why these changes are happening."


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