Tipping Point: Did the Recent Change to the NH Minimum Wage Statute Clarify or Confuse Rules on Tip Pooling and Tip Sharing?

By: Attorney Jim Reidy

In the last session of the New Hampshire Legislature, a bill regarding tip pooling passed and became law.  Employers with tipped employees hoped that this amendment to the State’s minimum wage law change would make a meaningful change to how tipped employees can share their tips with other employees.  Sadly, some confusion remains.

Under the State’s minimum wage law (RSA 279:21), tipped employees, meaning those who work in a restaurant, hotel, motel, inn, cabin or ballroom and customarily and regularly receive at least $30 per month in tips directly from the customers may be paid base hourly rate at 45% of the current minimum wage as long as the employee’s tips at the end of each pay period at least equal minimum wage for the hours worked in that pay period.

It is commonplace for tipped employees to participate in tip pools.  Those are arrangements where tipped employees agree, without coercion from the employer, to pool their tips and divide the pool among the pool’s participants.  The employer has virtually no role in the organization of who participates in the tip pool as this is supposed to be a pool among tipped employees.  However, there is some level of employer involvement in the administration of these pools because employers need to ensure compliance with the minimum wage statute (making sure tipped employees report and get credit for their tips and the employer has paid at least minimum wage for the hours worked).  State law permits employers to help hold and administer the distribution of the pool amounts.  Employers can also suggest reasonable and customary practices, as well as mediate disputes between employees as to the distribution of tips.

That said, employers must still be careful to avoid pressuring or suggesting that employees must participate in these pools, especially the donor (tipped) employees.  The issue the New Hampshire Department of Labor has had with tip pools is whether participation in the pool is voluntary and free from coercion from the employer.  That is because participation in a tip pool depends on each employee and can vary from day to day.  Tipped employees must be able to decide whether they want to participate in the pool and to what extent.  That can vary from day to day and tipped employees must be able to opt out or change the amount of their contributions.

The Department of Labor has also looked at who participates in other forms of tip sharing arrangements.  Again, participation in a true tip pool is supposed to be only tipped employees, meaning those who receive the tips directly from the customer.  The problem is that many employees often interact with customers and therefore influence the customer’s experience and likelihood of adding a tip to the bill.  Servers generally acknowledge the contributions of others and many share tips with hosts (those who escort the customers to the table), expediters (those who bring the food or drinks to the table), bar backs (those who bring drinks from the bar) and busboys (those who clean the tables and prepare the tables for the next customer).  Those arrangements are known as tip sharing because those other employees, while they interact with customers and help improve the customer’s experience, don’t receive tips directly from customers.  Those tip sharing arrangements must also be voluntary.  While the tipped employee must still report tips for the tip credit agreement his/her minimum wage for that week, the non-tipped employees don’t get the tip credit and must be paid at least a minimum hourly wage in addition to whatever tips they are given in the tip share.  Sounds simple right?  Not so much.  This has been a troublesome issue for many employers with tipped employees.

The issue in most of these cases is that tipped employees felt pressured or coerced, directly from management or individually from co-workers to participate in tip pools or tip sharing.  Also, tip sharing seemed to be a bigger issue as tipped employees were sharing their tips with non-tipped employees and those tipped employees didn’t always feel that the sharing was voluntary.

In an effort to address this issue, a bill in the last legislative session, SB 37, became law.  That new law, effective September 3, 2017, added a new provision to RSA 279:26-b.  “Nothing shall preclude employee participants in a tip pool from agreeing, voluntarily and without coercion, to provide a portion of the common pool to other employees, regardless of job category, who participated in providing service to customers.”  Clear as mud?

The problem is that the notions of tip pooling and tip sharing seem to be blended together, and the NH Department of Labor, relying on the definition of tipped employees under State law, the tip credit requirements under federal and state wage laws, and NH Department of Labor still consider the rules for tip pools and tip sharing to be different.  That doesn’t seem to be the intent of those who proposed and supported SB 37.

In this session the Legislature has an LSR placeholder that purports to repeal the State’s tip pooling statute.  Because it is an LSR there is no further definition to the bill at this point.  Perhaps this bill will help clarify these matters.

In the meantime, employers with tipped employees must continue to comply with minimum wage and tip credit requirements, and take note of the differences between tip pools and tip sharing arrangements.  

Stay tuned (and be sure to tip generously).

Attorney Jim Reidy (Sheehan Phinney) is a well-known employment lawyer and chair of the firm’s Labor and Employment group.