Tip Pool Violation - Back Wage Recovery for Tipped Employees

DOL News Releases

Filed April 6th, 2026

Detected April 6th, 2026

Summary

The U.S. Department of Labor's Wage and Hour Division recovered $85,197 in back wages for 36 employees after finding that Nate's At The Buda Mill & Grain Inc. (operating as Nate's Coffee & Cocktails) violated the Fair Labor Standards Act by allowing a general manager to participate in an employee tip pool. The violation invalidated the employer's tip credit, requiring payment of full minimum wage to affected workers.

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What changed

The Wage and Hour Division investigation found that Nate's At The Buda Mill & Grain Inc., operating a coffee bar and lounge in Buda, Texas, illegally included its general manager in the employee tip pool. Under the FLSA, managers and supervisors may not retain any portion of employees' tips, and when an employer violates this prohibition, the tip credit is invalidated, obligating the employer to pay full minimum wage to all affected tipped employees. The employer failed to pay full minimum wages, resulting in $85,197 in back wages being recovered for 36 workers.

Employers operating tip pools should immediately review their arrangements to confirm that no managers or supervisors participate in or receive any portion of employee tips. If managerial staff have been included in tip pools, employers must pay full minimum wage to affected employees going forward. The WHD offers compliance assistance via its toll-free helpline (866-4US-WAGE) and industry-specific toolkits. Employers can also use the PAID program to self-report and resolve potential violations proactively.

What to do next

Review tip pool arrangements to confirm no managers or supervisors participate or receive tips
If managers were included in tip pool, calculate and pay full minimum wage to affected employees retroactively
Contact WHD compliance assistance at 866-4US-WAGE if questions exist about tip credit eligibility

Penalties

$85,197 in back wages recovered for 36 employees; loss of tip credit requiring full minimum wage payment

Source document (simplified)

News Release

US Department of Labor recovers $85K in back wages for 36 workers after investigation finds tip pool violations at coffee bar, lounge near Austin

Cafe general manager illegally included in employee tip pool AUSTIN, TX – The U.S. Department of Labor has recovered $85,197 in back wages for 36 employees after an investigation found a coffee bar and lounge in Buda operated an illegal tip pool.

An investigation by the department’s Wage and Hour Division determined that Nate's At The Buda Mill & Grain Inc. – operating as Nate's Coffee & Cocktails – violated the Fair Labor Standards Act by allowing its general manager to participate in the employee tip pool. This invalidated the employer’s use of the tip credit and required the employer to pay full minimum wage to affected workers, which the company failed to pay.

The FLSA permits an employer to take a tip credit toward its minimum wage obligations for tipped employees if employees receive enough tips from customers and direct wages per workweek to equal at least the minimum wage compensation required under federal law. However employers, including managers and supervisors, may not keep any portion of employees’ tips for any purpose.

“By law, managers and supervisors are not allowed to retain employees’ tips or participate in a tip pool. Service workers are entitled to all the tips they earn from customers and managers are not permitted to take away those rewards given for employees’ hard work,” said Wage and Hour Division District Director Charles Frasier, in Houston. “Employers are encouraged to contact us for any questions about their obligations under the law. We are here to provide assistance.”

Workers and employers can call the Wage and Hour Division with questions and requests for compliance assistance at its toll-free helpline, 866-4US-WAGE (487-9243). Employers are encouraged to use the agency’s industry-specific compliance assistance toolkits to learn about their responsibilities under the laws enforced by the division. The agency’s PAID program offers employers an opportunity to self-report and resolve potential minimum wage and overtime violations under the FLSA, as well as certain potential violations under the Family and Medical Leave Act.

Learn more about the Wage and Hour Division, including a search tool that workers can use if they think they may be owed back wages collected by the division. Download the agency’s free timesheet app for iOS and Android devices to track hours and pay.

Agency Wage and Hour Division Date April 6, 2026 Release Number 26-517-DAL Media Contact: OPA West Media Email opa-west-media@dol.gov Share This
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