Co-authored by Joseph Santoro, Partner, Gunster

The New Year brought the hotel industry to its lowest level in decades. The occupancy for hotels nationwide was at 45.1% in January, the lowest percentage since a leading industry analyst starting tracking the number 23 years ago, the Los Angeles Times reported in April. Facing difficult economic conditions, some hoteliers are looking for creative ways to stay out the red by reducing expenses, including labor costs. For example, some hotels have expanded the use of “tip pools” which, if done properly, can provide hotels with a federally sanctioned way to reduce payroll expenses and provide job security for more of their employees.

What are “tip pools”? In short, tip pooling is a mechanism where employers can require certain employees to contribute a portion of their direct tips (up to a maximum of 15%) into a “pool” so that they can be equally distributed to other employees who contribute to the customers’ experience, but who do not receive the benefit of getting substantial tips directly from customers. For example, hosts, hostess, and busboys in a hotel restaurant may interact with customers and contribute to the overall customer service experience, but are not frequently ...