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With the rise of tipping in nontraditional industries, now is a good time for Oregon employers to review their practices to ensure compliance with federal and state regulations for handling, accounting for, and distributing tips.

Here are a few key reminders for Oregon employers with employees who receive tips:

Tip credits prohibited in Oregon

Unlike federal regulations, which allow an employer to use a tip credit toward the employer鈥檚 minimum wage obligations, Oregon prohibits employers from using employee tips as a credit to meet the minimum wage requirement. That means Oregon employers must pay nonexempt workers at least minimum wage for all hours worked plus any tips provided by a customer.

Tip pooling allowed for certain workers

When a customer provides a tip, it is generally the property of the tipped employee. An exception to this rule is tip pooling 鈥� employers can require that tipped employees combine some or all their tips into a 鈥減ool鈥� that is then redistributed among employees who are part of the pool. Tip pooling is allowed in Oregon.

There are strict regulations on who can and cannot be part of a tip pool and share tips. After some back and forth at the federal level, the Department of Labor via its final rule on tip pooling, effective in 2021, confirmed that employers that do not take a tip credit (like those in Oregon) may implement tip pools that include employees who do not customarily and regularly receive tips (such as cooks and dishwashers) by directly interacting with a customer.

Importantly, employers 鈥� including managers and supervisors 鈥� are prohibited from participating in tip pools. A limited exception allows managers and supervisors to keep tips that they receive directly from customers based on the service that they directly and solely provide, but this exception can be tricky, and employers should proceed with caution.

An employee is a manager or supervisor for purposes of tip pooling if the person meets the duties test for the Fair Labor Standards Act鈥檚 executive exemption. That means a manager or supervisor is any employee (1) whose primary duty is management of the enterprise, or a customarily recognized department or subdivision of the enterprise; (2) who customarily and regularly directs the work of two or more other employees or their equivalent; and (3) who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing are given particular weight. The definition of 鈥渕anagers or supervisors鈥� also includes any individuals who own at least a bona fide 20 percent equity interest in the enterprise in which they are employed and who are actively engaged in its management.

Redistribution payments & recordkeeping requirements

An employer that collects tips to facilitate a mandatory tip pool must fully redistribute tips from the tip pool no less often than when it pays wages to avoid unlawfully 鈥渒eeping鈥� the tips. Tips can be redistributed in several ways, but employers should be mindful of the optics involved in how tips are redistributed.

An employer that mandates tip pooling (but does not take a tip credit), must also preserve or maintain certain records relating to tip pools, including records identifying each employee who receives tips, and records containing the weekly or monthly amount of tips received by each employee.

Potential consequences for noncompliance聽

Failure to comply with tip pooling regulations could have tax consequences and result in several wage and hour concerns, including underpayment of employees. Further, employers could face civil money penalties from the DOL per violation regardless of whether violations are repeated or willful. Even though employers could face civil money penalties if the employer鈥檚 conduct is not repeated or willful, a willful violation increases the likelihood of civil monetary penalties and potential litigation. A willful violation is one where 鈥渢he employer knew that its conduct was prohibited by the FLSA or showed reckless disregard for the requirements of the FLSA.鈥� Failure to comply with tip pooling regulations also increases the risk of litigation against an employer, and the risk of class-action litigation is more likely in the wage and hour context.

Oregon employers should review their tip pooling practices and reach out to counsel with questions to ensure compliance.

Chris Morgan is a Barran Liebman LLP partner. He specializes in the defense of complex and high-profile employment matters. Contact him at 503-276-2144 or聽[email protected].

Natalie Pattison is a Barran Liebman LLP attorney. She counsels and represents employers on a wide range of employment and labor matters. Contact her at 503-276-2104 or聽[email protected].

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither author nor the 91视频 guarantees the accuracy or completeness of any information published herein.