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Tip sharing gets green light, with limits

The go-ahead, applicable only to operations that don’t take a tip credit, was issued with little notice this week.

After months of confusion, the U.S. Department of Labor has issued a directive permitting restaurants to pool servers’ gratuities and share the funds with back-of-house staff if tips don’t count toward the wages they’re due.

The go-ahead was part of what DOL calls a field assistance bulletin, issued with no announcement on Monday. Many in the industry were not aware of the policy determination, which essentially alerts businesses and individuals that DOL authorities are changing their enforcement guidelines.

The statement of policy clears up the confusion that has reigned since an omnibus appropriations and budget reconciliation bill was passed in March. Lawmakers slipped a provision into the voluminous legislation that banned restaurants from keeping any portion of servers’ tips. Fear of skimming had drawn a firestorm of protest to a proposal from DOL to permit tip sharing between front- and back-of-house staffs in places that don’t take a tip credit, or count tips toward the minimum wage due an employee.

The tip credit is not legal in seven states, including California, the restaurant industry’s largest market, and Nevada.

The no-skimming provision of the appropriations bill was expected to allay opposition to tip sharing, clearing the way for DOL to proceed with the reversal of a 2011 ban on sharing. But other language in the legislation seem to permit redistribution along with prohibiting management from participating in any pool.

The language was so confusing that experts pored over it and came up with a variety of interpretations. The Golden Gate Restaurant Association, for instance, acknowledged that it studied the measure for weeks before alerting members that it believed tip sharing was green lighted by the provision.

The DOL dashed that confusion with its clarification on Monday. The field assistance bulletin "confirms that employers who pay the full federal minimum wage may now allow non-traditionally tipped workers, such as cooks and dishwashers, to participate in tip pools," the agency said on it website.

The news is likely to be welcomed by operators who can now use tip sharing to narrow the pay gap between front- and back-of-house employees. Because servers in places not taking a tip credit have essentially a starting wage equal to what other hourlies get as their whole compensation, their income is pushed to a much higher level by tips. It is not unusual in some restaurants for servers to make several times what a sous chef might.

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