In a recent Opinion Letter, the U.S. Department of Labor (DOL) addressed who can receive tips in a mandatory tip-out or tip-pooling arrangement. This recent Opinion Letter is a good reminder for employers who have tipped employees to review their tip-sharing practices to ensure compliance with state and federal law.

Tip sharing has been the topic of many state and federal lawsuits and agency guidance over the years. As such, employers should understand the DOL’s latest interpretation of these arrangements and how it applies to employees who perform tipped work and managerial duties.

Opinion Letter: Managers and Supervisors Cannot Share Tips

The Opinion Letter (FLSA2026-13) arose from a question from an employee at a restaurant that has a tip pooling arrangement where servers are required to “tip out” bartenders, hosts, and bussers. The employee’s question related to a particular employee who was part of this tip sharing arrangement; an employee who performed both bartending and managerial duties.

When this employee, described as a shift supervisor, was working a bartending shift, they would collect a “tip out” from the servers. Additionally, when performing their managerial duties, this employee would often assist hosts and bussers and collect a portion of the “tip out” intended for hosts and bussers.

This arrangement, according to the DOL, does not comply with the Fair Labor Standards Act’s (FLSA) tip provisions. The FLSA prohibits employers, including supervisors and managers, from keeping any portion or employees’ tips. The Opinion Letter clarified that stepping into a tipped role does not entitle the supervisor or manager to share in other employees’ tips.

Who is a Manager or Supervisor under the FLSA?

The FLSA regulations define manager or supervisor to include employees whose duties match those of an executive employee exempt from the minimum wage and overtime requirements of the FLSA. Meaning, employees who meet the duties test for the executive exemption under the FLSA cannot share in tips.

The test to determine whether someone is a manager or supervisor for the purposes of a tip sharing arrangement looks at (1) whether the employee’s primary duty is managing the enterprise or a customarily recognized department or subdivision of the enterprise, (2) whether the employee customarily and regularly directs the work of at least two full-time employees, and (3) whether the employee has authority to hire or fire other employees or whose recommendations in that regard are given particular weight.

These criteria highlight the key differences between an employee who occasionally leads individual tasks and one whose primary duty is management.

The salary basis and salary threshold requirements for exemption from minimum wage and overtime under the FLSA do not apply when determining whether an employee is a manager or supervisor for the purpose of sharing in tips.

When a Manager or Supervisor Engages in Tipped Work

If an employee meets the definition of a manager or supervisor as outlined above, the fact that they also perform tipped work does not change their entitlement to a share of other employees’ tips. However, managers and supervisors may be required to contribute a portion of their own tips from tipped work to a mandatory pool, even though they cannot share in tips earned by other employees.

Limited Exception: Tips Earned Directly from Tipped Work

There is one very limited exception under the FLSA for tips earned by managers or supervisors engaging in tipped work. A manager or supervisor is allowed to retain any tips received directly from customers for services that the manager or supervisor personally provided to those customers. For example, a restaurant manager who covers a few tables when a server is out sick may keep tips given directly for services provided to those tables.

Takeaways for Nevada Employers

This Opinion Letter offers valuable insights and provides a helpful reminder to Nevada employers to review their tip sharing policies and day-to-day practices to ensure tips are being handled appropriately.

To reduce the risk of noncompliance, we recommend the following actions:

• Review Actual Job Duties. An employee’s job duties, not their job title, are determinative in whether they meet the definition of a manager or supervisor for regulations on tips. Evaluate each employee’s management role, main responsibilities, authority over hiring, and direction of other team members.
• Audit Tip Sharing Practices. Confirm that managers and supervisors do not receive distributions from tip pools or tip sharing arrangements.
• Examine Payroll and Point of Sale Settings. Review your system settings to ensure they are not automatically allocating pooled tips to ineligible employees.
• Keep Direct Tips Separate. Because managers and supervisors can retain tips they solely earn for services they personally provide, keeping direct tips separate ensures they remain clearly attributable to the managers’ or supervisor’s own service.
• Check State Law. In some cases, state law provides stricter rules on tip sharing. While Nevada law permits tip sharing amongst employees of all ranks, employers need to follow the stricter guidelines put in place by federal requirements.

By taking these steps, Nevada employers can better protect employees’ tips, reduce compliance risks, and ensure their practices align with applicable federal and state requirements. NAE members with questions about a particular arrangement should consult our team of legal and HR professionals for guidance.

By: Audra L. Parton, JD