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February 2016

Tip Cannot be Pooled with Back of House in Restaurants

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The 9th Circuit Court of Appeals upheld the 2011 Federal Department of Labor ruling stating that businesses could not force front of the house employees such as servers, bartenders and other employees to share their tips with the back of the house employees (cooks, dishwashers, prep). This case affects businesses in California, Alaska, Minnesota, Montana, Nevada, Oregon and Washington.

This law has come down during tough times. The labor pool for restaurants in tough and minimum wages in the Bay Area are already high. Restaurants are struggling to attract and retain employees and many were using tip sharing as a method to better compensate the back of the house employees.

What options remain? Some restaurants are increasing the surcharge to help offset the added cost. Others are moving to service charges, but that is risky if your employees work overtime. Whiles others are raising their rates and eliminating tips altogether.

Whatever solution you choose, make sure you fully understand and and all exposures. Services charges are subject to sales taxes, and must be included when calculating overtime. If you charge a surcharge, you must be careful what you call the surcharge to avoid consumer fraud charges. Lastly, you need to communicate the change to the consumer and your employee.