Department of Labor Bars Working Managers and Supervisors From Tip-Outs

John Agbonika, Associate

            On September 7, 2026, the Department of Labor’s (“DOL” or the “Department”) Wage and Hour Division (the “Division”) issued an Opinion Letter FLSA2026-13 (the “Opinion Letter”)[1] stating that a restaurant "shift supervisor" whose duties match those of an exempt executive may not take any share of other employees’ tips even on shifts spent tending bar or helping hosts and bussers. The supervisor may keep only tips earned “directly and solely” from their own customers. Colorado law reaches the same result and sweeps more broadly, so restaurants using hybrid supervisor-bartender roles should review their tip-out practices.

Background

            The Fair Labor Standards Act (“FLSA”) bars employers from keeping employees’ tips, including by paying portions of the tip pool to working managers or supervisors, whether or not the employer takes a tip credit.[2] A “manager” or “supervisor” means any employee whose duties match those of an executive employee.[3] Employers are allowed to take a tip credit and employers may require that tipped employees participate in a tip pool.[4] A tip credit allows an employer to count a portion of an employee’s tips toward satisfying the federal minimum wage obligation under the FLSA.[5]

The Opinion Letter

            A server asked the Division whether the FLSA allows a restaurant supervisor to keep a portion of the tip pool when the supervisor worked as a bartender and assisted other employees.[6] The server described the restaurant’s tip-out arrangement under which the servers shared a percentage of sales with bartenders, hosts, and bussers.[7] Also, the restaurant supervisor collected tip outs from other servers on days the restaurant supervisor worked a bartending shift in addition to performing managerial work, including setting schedules and deciding when employees’ shifts ended.[8] The Division concluded that the FLSA prohibits a supervisor from keeping any portion of other employees’ tips, regardless of whether the supervisor also works as a bartender or assists other employees.[9]  

            The Division’s regulations also provide that neither an employer nor supervisors and managers may receive tips from a tip pool.[10] However, a manager or supervisor may keep a tip received directly from a customer for a service that the supervisor “directly and solely” provides—for example, a tip left by customers at a table the supervisor alone covers or by the supervisor’s own bar customer.[11] But if a supervisor’s or manager’s tips are combined with other servers’ tips and divided across the shift, the supervisor may not participate in the tip pool because the tips can no longer be attributed solely to the supervisor’s service.[12] Also, an employer may require the supervisor to contribute the supervisor’s own direct tips to an eligible pool, but the supervisor may not receive a distribution from that pool.[13]

Colorado Tipping Rules

            Similarly, the Colorado Overtime and Minimum Pay Standards (COMPS) Order #40 permits mandatory sharing among tipped employees who perform significant customer-service functions, but if an employer requires tip sharing with management or employees outside that group, the employer loses any allowable Colorado tip credit.[14] Colorado guidance bars the following from participating in tip pools: (1) employers, (2) any employee whose duties, “performed for at least one workweek,” match Colorado’s executive-or-supervisor exemption, and (3) anyone who is a manager or supervisor under federal law as described in 29 C.F.R. § 531.52(b)(2).[15] However, Colorado also recognizes similar to the FLSA, that a manager may keep direct tips based on services “directly and solely” provided by the manager, “as long as these tips are clearly traceable and have not been comingled with other tips in a tip pool.”[16]

Employer Considerations

            Colorado employers should review their tipping policies and ensure that employees who manage or supervise as their primary duty do not share in the tipping pool. Managers/supervisors may retain their own tips for services they solely and directly provide. This is important especially because one ineligible participant in a tipping pool can invalidate the pool and cost the employer the tip credit for everyone in it. Lastly, employers should ensure compliance with state and federal tipping rules as violations may require repayment of unlawfully kept tips, loss of the tip credit for affected employees, and an equal amount as liquidated damages, in addition to potential civil penalties.[17]

[1] Wage & Hour Div., U.S. Dep't of Lab., Opinion Letter FLSA2026-13 (Sept. 7, 2026), available at https://www.dol.gov/sites/dolgov/files/WHD/opinion-letters/FLSA/FLSA2026-13.pdf (hereafter, “Opinion Letter FLSA2026-13”)

[2] See 29 U.S.C. § 203(m)(2)(B).

[3] To determine whether an employee is a “manager or supervisor” for tip-pooling purposes, the employee’s actual duties must satisfy the executive duties test: (1) management must be the employee’s primary duty; (2) the employee must customarily and regularly direct the work of at least two full-time employees or their equivalent; and (3) the employee must have authority to hire or fire, or the employee’s recommendations about personnel decisions must receive particular weight.  See Opinion Letter FLSA2026-13, at 2-3 (citing 29 C.F.R. §§ 531.52(b)(2), 541.100(a)(2)–(4)). This inquiry does not include a salary-level requirement, and an hourly or otherwise nonexempt employee may therefore still qualify as a manager or supervisor who is barred from receiving other employees’ tips. Id. at 2 n.2 (citing 29 C.F.R. § 531.52(b)(2)).

[4] See 29 C.F.R. § 531.52(b)(1).

[5] See 29 U.S.C. § 203(m)(2)(A).

[6] Opinion Letter FLSA2026-13, at 1

[8] Id.

[9] Id.

[10] Id. at 2 (citing 29 C.F.R. §§ 531.52(b); 531.54(b), (c)(3), and (d)).

[11] Id. at 4 (citing 29 C.F.R. § 531.52(b)(2)).

[12] Id.

[13] Id.

[14] 7 Colo. Code Regs. § 1103-1:1.10(A)-(B).

[15] Colo. Dep't of Lab. & Emp., Div. of Lab. Standards & Stat., INFO #3C: Tips (Gratuities) and Tipped Employees Under Colorado Wage Law, at p. 6 n.25 (Dec. 18, 2025) (citing Colo. Rev. Stat. § 8-4-101(6); 7 Colo. Code Regs. § 1103-1:2.2.2; 29 C.F.R. § 531.52(b)(2)).

[16] INFO #3C, at p. 6 n.25.

[17] Id. at 5 (citing 29 U.S.C. § 216(b)-(c)).