Many restaurants (or other businesses) have a policy that all tips received are put into a pool to be shared by all employees including cooks, dishwashers, etc. Many smaller establishments have a tip jar on the counter where customers place tips and the tips are then shared by every employee.

As a South Carolina restaurant owner, are you aware that tip pooling may place your business in violation of Federal law?

Are you aware some attorneys are filing lawsuits due to such practices? You should read the Dec 11, 2014 article in the Post & Courier entitled “Lawsuit against Hank’s Seafood…”

And you are asking why!  Since South Carolina does not have its own minimum wage or tips law, Federal law applies to SC employees. According to the Federal Department of Labor and as per the Fair Labor Standards Act (FLSA), only employees who regularly receive tips can be part of the tip pool. Employees cannot be required to share their tips with employees who do not usually receive their own tips, like dishwashers or cooks. No employers are allowed to participate in the pool.

Here is a link for more information: http://www.nolo.com/legal-encyclopedia/south-carolina-laws-tipped-employees.html.

From an insurance standpoint, the type lawsuit described above is usually not covered by your Employer Practices liability Insurance (EPLI) policy. And if there is coverage afforded via a “wage and hour defense” endorsement, the EPLI policy pays only for defense costs and not for a judgment. Be sure to contact your insurance agent and inquire about your insurance. We have found some companies will add the Wage and Hour Defense coverage for restaurants and some will not.

And, as an employer, you should consider stopping the practice of pooling tips in your place of business.

For non-restaurant owners, the FLSA also has implications for your business since the law includes anything that essentially affects the employee’s wages to the extent that the employee ends up under minimum wage. This could include charging the employee for uniforms, making the employee work on his/her lunch break, making salaried employees work on the weekend, etc.

This article is not intended to provide legal advice. This is a complicated issue so you should consult an attorney versed in labor laws.

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