DOL: Managers Cannot Share in Employee Tip Pools, Even When Performing Tipped Work

The U.S. Department of Labor’s Wage and Hour Division (WHD) issued an opinion letter addressing a question of significant practical importance to restaurant and hospitality employers: whether a supervisor who also performs tipped work — such as bartending — may participate in a tip pool and receive a share of other employees’ tips.

The short answer is no. Under the Fair Labor Standards Act (FLSA), a supervisor who meets the executive duties test is prohibited from keeping any portion of tips earned by other employees, regardless of whether the supervisor also works shifts performing tipped duties. The opinion letter does, however, identify a narrow exception: a supervisor may keep tips received directly from customers for service the supervisor “directly and solely” provided.

The opinion letter arose from an inquiry by a restaurant server whose employer maintained a “tip-out” arrangement under which servers were required to share a percentage of their sales-based tips with bartenders, hosts and bussers.

The server asked about a particular employee — a “shift supervisor” — who periodically worked bartending shifts, performing “all usual bartending duties,” while simultaneously continuing to carry out management functions. These management functions included determining when employees’ shifts ended, developing work schedules, and performing other managerial tasks. When working bartending shifts, the shift supervisor collected a portion of the servers’ “tip-out” intended for bartenders.

Additionally, the shift supervisor often assisted hosts and bussers while performing managerial duties and collected portions of the tip-out intended for those positions as well.

The central question was straightforward: Can this shift supervisor receive a portion of other employees’ tips through the employer’s tip-out arrangement while also serving as a supervisor?

FLSA Tip Provisions and the 2018 CAA Amendments

The FLSA has long contained special provisions governing tips. Under the act, a “tipped employee” is one who “customarily and regularly receives” tips. Employers of tipped employees may claim a “tip credit” toward the federal minimum wage, paying a direct cash wage of as little as $2.13 per hour and counting the employee’s tips toward the remaining $5.12 per hour obligation (bringing the total to the $7.25 minimum wage).

In 2018, Congress enacted the Consolidated Appropriations Act, which amended FLSA Section 3(m)(2)(B) to prohibit an “employer” from keeping employees’ tips “for any purposes.” Critically, the statute expressly includes within this prohibition a “manager or supervisor” being able to keep tips received by other employees. This prohibition applies regardless of whether the employer claims a tip credit — a significant expansion of prior law.

Who Is a “Manager or Supervisor”? The Executive Duties Test

WHD regulations define “manager or supervisor” for tip-pool purposes by reference to the executive exemption duties test under 29 C.F.R. § 541.100(a)(2)–(4). An employee is a “manager or supervisor” if the employee’s duties match those of an “executive employee,” specifically:

• • • Primary duty of management. The employee’s primary duty is managing the enterprise or a customarily recognized department or subdivision of the enterprise.
    • Direction of employees. The employee customarily and regularly directs the work of at least two full-time employees (or the equivalent).
    • Hiring and firing authority. The employee has the authority to hire or fire other employees, or the employee’s suggestions and recommendations regarding hiring, firing, advancement or other changes of status are given particular weight.

Two important clarifications follow from this framework:

1. 1. 1. Salary requirements do not apply. Unlike the full executive exemption (which requires a minimum salary), the tip-pool “manager or supervisor” definition looks only at duties. An hourly, nonexempt employee who meets the duties test is still a “manager or supervisor” for tip purposes.
      2. Job titles do not control. Actual duties and responsibilities — not the employee’s title — determine manager or supervisor status. An employee called a “barista” or “shift lead” can be a “manager or supervisor” if the duties test is met, and conversely, someone with a “manager” title may not qualify if they lack the requisite duties. See 29 C.F.R. § 541.2.

The DOL’s Opinion

Applying this legal framework, the WHD reached the following conclusions:

A Supervisor Cannot Receive Other Employees’ Tips

If an employee satisfies the executive duties test, that employee is a “manager or supervisor” for purposes of FLSA Section 3(m)(2)(B) and is prohibited from receiving any portion of tips from other employees—even if the supervisor also works bartending shifts alongside other employees, assists hosts and bussers, or otherwise performs tipped work.

This prohibition extends to any form of tip sharing, including formal tip pools, informal “tip-out” arrangements, and any other method by which a supervisor might receive tips earned by other employees.

The Narrow Exception: Tips “Directly and Solely” Provided

The opinion letter does recognize one important exception. A manager or supervisor may keep tips received directly from customers for service the supervisor “directly and solely” provided. 29 C.F.R. § 531.52(b)(2).

For example, if the shift supervisor in question tends bar during a shift and a customer leaves a tip specifically for the supervisor’s personal service at the bar, the supervisor may keep that tip. The key requirement is that the tip must be attributable solely to the supervisor’s own service, not to the collective efforts of the staff.

The Commingling Problem

The opinion letter addresses a critical practical issue that many employers overlook: what happens when a supervisor’s tips are consolidated with other employees’ tips?

In many restaurants, all bartenders’ tips for a given shift are pooled together and divided among the bartenders who worked that shift. The WHD concluded that if a supervisor’s bar tips are consolidated with the tips of other bartenders and then split among the group, the supervisor cannot receive any portion of the pooled amount. The rationale is straightforward: once tips are commingled, it is no longer possible to attribute any particular portion “solely” to the supervisor’s service.

This is an important distinction. A supervisor working a bartending shift might, in theory, be entitled to keep tips left by customers the supervisor personally served. But the moment those tips are thrown into a collective pot and redistributed, that attribution is lost — and the supervisor cannot take any share of the pooled tips.

What the Opinion Letter Did Not Address

Notably, the opinion letter expressly did not address the scenario where an employee whose primary role is a bartender or server occasionally works shifts in a managerial capacity. If the employee’s primary duty is not management, the employee would not satisfy the executive duties test and would not be considered a “manager or supervisor” for purposes of Section 3(m)(2)(B). Employers with employees who fall into this category should evaluate those arrangements separately.

Enforcement and Penalties

Congress established dedicated penalties for violations of Section 3(m)(2)(B) as part of the 2018 CAA amendments. These penalties are twofold:

1. 1. 1. Recovery of tips. The employer may be required to return all tips that were improperly kept by or distributed to managers or supervisors.
      2. Disallowance of the tip credit. If the employer claims a tip credit, the credit may be disallowed for all affected tipped employees whose tips were improperly distributed to supervisors. This can result in substantial back-wage liability.

The opinion letter serves as a clear reminder that the FLSA’s tip protections apply based on an employee’s actual duties — not their job title or what tasks they happen to be performing on a particular shift. Supervisors who meet the executive duties test are categorically barred from receiving other employees’ tips, even when they work side-by-side with tipped employees.

Please contact Mark Fijman or any member of the Phelps labor and employment team with questions.