On March 23, 2023, Utah Governor Spencer Cox signed into law Senate Bill 73 (“SB 73”) expanding the group of employees eligible for tip pooling by allowing employers to include non-tipped employees in a bona fide tip pooling or sharing arrangement.
Historically, only “tipped employees” were permitted to participate in a tip pooling or sharing arrangement under Utah State law. This form of tip pooling is also allowed under federal law and is otherwise known as a traditional tip pool. A “tipped employee” is one who customarily and regularly receives tips or gratuities.”[1] Common examples of tipped employees include waiters and waitresses, whereas dishwashers, chefs, cooks, and janitors are examples of non-tipped employees.
Tipped employees typically retain all tips and gratuities they receive directly; however, alternatively, they may participate in a bona fide tip pooling or sharing arrangement with other tipped employees.[2] A bona fide tip pooling or sharing arrangement is where an employer mandates that tips be pooled and divided or shared among those who customarily and regularly receive tips.[3]
With the passage of SB 73, businesses may now effectively permit non-tipped employees to participate in a tip pooling or sharing arrangement with tipped employees, potentially resulting in tips received by tipped employees being shared among a larger number of employees (both tipped and non-tipped employees).
SB 73 reflects the same change previously made under federal law. In December 2017, the U.S. Department of Labor enacted a final rule amending the Fair Labor Standards Act (FLSA), to permit back-of-house, or non-tipped, employees to share in tip pools. This is also known as a non-traditional tip pool. But, be advised that both the FLSA’s implementing regulations and SB 73 only allow this type of tip pooling where all employees involved receive a cash wage of at least the full prevailing minimum wage, meaning that no tip credit – which generally is a permissible practice for tipped employees under federal regulations and Utah law – may be part of such a pool.
What Businesses Should Consider Looking Ahead
Businesses must provide all employees who participate in tip pooling or sharing arrangements with written notice either at the time of hire or prior to implementation of such tip pooling.[4] As a reminder, employers are not obligated to implement tip pooling or sharing arrangements and may, but are not required to, allow non-tipped employees to participate in such tip pooling.
One potential benefit of allowing both tipped and non-tipped employees to participate in tip pooling or sharing is to encourage teamwork and increase overall productivity among all employees. Additionally, employers may choose to include non-tipped employees to address any perceived imbalances between tipped and non-tipped employees.
Lastly, businesses who employee individuals in Utah should keep in mind that “tips” generally include voluntary gratuities paid by customers but do not include compulsory service charges imposed on a customer by the employing entity.[5]
[1] Utah Code § 34-40-101(2)(i).
[2] Utah Code § 34-40-104(4)(a-c).
[3] Utah Admin. Code. r. 610-1-4(D).
[4] Utah Admin. Code. r. 610-1-4(E).
[5] Utah Admin. Code. r. 610-1-4(D).
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Alexandria Adkins, a Law Clerk – Admission Pending (not admitted to the practice of law) in the firm’s New York office, contributed to the preparation of this post.
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