Have we reached the tipping point?

Recent change to state law may have further confused tip-pooling and tip-sharing rules

In the last legislative session, a bill regarding tip-pooling passed and became law. Employers with tipped employees hoped that this amendment to New Hampshire’s minimum wage law would make a meaningful change to how tipped employees can share their tips with other employees. Sadly, some confusion remains.

Under the state’s minimum wage law, tipped employees — meaning those who work in a restaurant, hotel, motel, inn, cabin or ballroom and customarily and regularly receive at least $30 per month in tips directly from the customers — may be paid a base hourly rate of 45 percent of the current minimum wage as long as the employee’s tips at the end of each pay period at least equal minimum wage for the hours worked in that pay period.

It is commonplace for tipped employees to participate in tip pools, arrangements in which tipped employees agree, without coercion from the employer, to pool their tips and divide the pool among participants. The employer has virtually no role in the organization of the pool, however there is some level of employer involvement in their administration because employers need to make sure tipped employees report and get credit for their tips and the employer has paid at least minimum wage for the hours worked.

State law permits employers to help hold and administer the distribution of the pool amounts. Employers can also suggest reasonable and customary practices, as well as mediate disputes between employees as to the distribution of tips.

That said, employers must still be careful to avoid pressuring or suggesting that employees must participate in these pools, especially tipped employees. The issue the NH Labor Department has had with pools is whether participation in them is voluntary and free from employer coercion. Tipped employees must be able to decide whether they want to participate in the pool and to what extent. That can vary from day to day, and tipped employees must be able to opt out or change the amount of their contributions.

The Labor Department has also looked at who participates in other forms of tip-sharing arrangements. Again, participation in a true tip pool is supposed to be only tipped employees, meaning those who receive the tips directly from the customer.

The problem is that many employees often interact with customers and therefore influence the customer’s experience and likelihood of adding a tip to the bill. Servers generally acknowledge the contributions of others and many share tips with hosts, expediters (those who bring the food or drinks to the table), bar backs and bussers.

Those arrangements are known as tip-sharing, because the other employees, while they interact with customers and help improve the customer’s experience, don’t receive tips directly from customers. Those tip-sharing arrangements must also be voluntary. While the tipped employee must still report tips to determine his/her minimum wage for that week, the non-tipped employees don’t get the tip credit and must be paid at least a minimum hourly wage in addition to whatever tips they are given in the tip share.

Sounds simple right? Not so much. This has been a troublesome issue for many employers with tipped employees.

The issue in most of these cases is that tipped employees felt pressured or coerced, by management or by co-workers, to participate in pools or sharing. Also, tip-sharing seemed to be a bigger issue, as tipped employees were sharing their tips with non-tipped employees and those tipped employees didn’t always feel that the sharing was voluntary.

Effective Sept. 3, Senate Bill 37 attempted to address this issue: “Nothing shall preclude employee participants in a tip pool from agreeing, voluntarily and without coercion, to provide a portion of the common pool to other employees, regardless of job category, who participated in providing service to customers.” Clear as mud?

The problem is that the notions of tip-pooling and tip-sharing seem to be blended together, and the tip credit requirements under federal and state wage laws still consider the rules for tip pools and tip-sharing to be different.

For the next session, there is a legislative services request that purports to repeal the state’s tip-pooling statute, but there is no further definition to the measure at this point. Perhaps this bill will help clarify these matters.

In the meantime, employers must continue to comply with minimum wage and tip credit requirements, and take note of the differences between tip pools and tip-sharing arrangements.

Stay tuned (and be sure to tip generously).

Attorney Jim Reidy is chair of the Labor and Employment Group at Sheehan Phinney.