WebstaurantStore / Food Service Resources / In-Depth Articles / Tip Pooling Laws
Tip Pooling  Laws

Tip Pooling Laws

Last updated on 6/13/2018

While customary in most service environments, tipping, and more specifically, the dispersion of tips, is often not as black and white as your patrons would expect. Between tip pooling and tip sharing, employee agreements often ensure that supporting staff receive their fair share of each tip earned in the establishment. But what is "tip pooling" and "tip sharing," and is it legal? This article will cover all you need to know to ensure your business remains in compliance while financially compensating staff accordingly with earned tips.

Is It A Tip?

Before you can attempt to understand tip pooling laws, it's important to understand what can and cannot be considered a "tip." A tip, or gratuity, is money given by a customer to an employee for outstanding service. Here are some examples:

Type Is It A Tip? How Much?

Cash Tips

Yes

In all states, 100% of the cash tip is considered the employee's property

Check Tips

Yes

In all states, 100% of the check tip is considered the employee's property

Credit Card Tips

Yes

Some states say that the employer must give the employee the full tip indicated by the customer; other states allow the employer to subtract the credit card company's processing fee from the tip before presenting to the employee

Service Charges

No

N/A


If it's considered a tip, it belongs to the employee, not the employer. Employees cannot be required to give their tips or any part of those tips to the company, unless as part of a valid tip pooling policy. And, even when tip pooling occurs, the employer cannot be part of the pool; only employees may participate.

Tip Pooling Laws

When it comes to service charges (mandatory service charges for large tables of diners, private parties, and catered events), the employer is not obligated to give any of this money to the employee – it is part of a contract, not a voluntary tip, and therefore, employees have no legal right to that money.

What is Tip Pooling?

Similar to other forms of financial pools, tip pooling involves the collection of all (or a portion of all) the tips collected from directly tipped staff to be put into one large "pool." From here, tips are redistributed among a larger group of employees. Tip pooling ensures that all staff members are fairly compensated for their work, especially when there are multiple services being rendered and single points of payment. Consider this example:

In a busy coffee shop, one person is in charge of taking drink orders, several people are in charge of preparing the orders, one person is in charge of delivering the orders to the customers, and another person is in charge of bussing the tables after the customers leave. Tip pooling would ensure that all parties, from the order taker to the busser, receive their fair share of the tips.

Tip Pooling vs. Tip Sharing

Unlike tip pooling, tip sharing (or "tipping-out") doesn't involve an equal distribution of tips between employees, but rather a set distribution rate (percentage), generally recommended by the employer. These rates are normally a percentage of tips, sales, or category receipts. Tip-out policy should be defined to distribute the pre-set percentage of funds to support staff, separately and apart from the pool participants.

Who To Include in What

Tip Pooling Tip Sharing Neither

Employees who customarily and regularly receive more than $30 per month in tips

Examples:

  • Bellhops
  • Bussers
  • Counter personnel
  • Service bartenders
  • Waiters & Waitresses

Employees who do not customarily and regularly receive tips

Examples:

  • Bakers
  • Chefs
  • Cooks
  • Dishwashers
  • Janitors

Supervisors or staff
members with supervisory responsibilities

Examples:

  • Banquet managers
  • Beverage managers
  • Catering managers
  • Dining room managers
  • Food and beverage managers/directors
  • Foodservice directors
  • General managers
  • Kitchen managers
  • President/CEO

Did You Know?

What is Tip Pooling?

The legality of tip pooling varies by state and local parameters, but there are some common threads to tip pooling policy set forth by federal tip pool regulations.

  1. In general, tip pools are legal when designed by employees themselves, and with distribution based on the level of service or amount of customer contact.
  2. Employees cannot be required to pay more into the pool than is customary and reasonable, and the employee must be able to keep at least the full minimum wage.
  3. All tip pooling policies that pertain to tips should be recommended and not mandatory unless specifically approved by your state.
  4. In some states, employers must compile a written tip pooling policy between staff and management in order to legally offset minimum wage with tips received.
  5. The Labor Law does not require employers to compensate employees for monies wrongfully withheld by a participant.

For more information on tip pooling laws, check out the U.S. Department of Labor's fact sheet.

Related Resources

Restaurant Labor Laws

In order to protect workers and employers, there are a series of employment and labor laws all restaurant owners must abide by. These laws, set by the United States Department of Labor as well as state and local governments, are designed to provide a safe, healthy, and fair workplace for employees. In this guide, we outline some of these key laws including policies on wages and tipping practices , the employment of minors, and occupational health and safety. Restaurant Wages and the Fair Labor Standards Act Many restaurant labor laws come from the Fair Labor Standards Act ( FLSA ), an act originally signed by Roosevelt in 1938, that explains the standards set for full-time and part-time workers in the private sector and in Federal, State, a

Types of Restaurant Ownership Structures

Deciding how your business is going to be structured depends a lot on what type of business you want to open, how many people are already invested in your business idea, and where you're getting your loans from. Choosing the right type of business is important, though, because it will affect you when it comes time to file taxes, borrow money, or attract investors. Your ownership structure can also alter the outcome in the unfortunate event that your business needs to deal with a lawsuit. Below, we break down the types of ownership structures and their pros and cons to help you decide which option is best for your business. Types of Business Ownerships There are many different ways that you can organize your business and the ownership struct

Reduce Your Restaurant Employee Turnover Rate

Restaurants are notorious for having a high turnover rate. Of course, sometimes saying goodbye to employees is inevitable, but there are a couple ways you can keep your staff happy to be a part of the team. In this article, we'll discuss some of the most common reasons why employees tend to leave their restaurant job and some strategies you can use to keep people happier longer. Why Is Employee Retention Important? Every time an employee leaves your business — even if they've only been there for a day — it winds up costing you about twice that employee's salary to replace them, meaning that a simple bad hire is money down the drain. Tips for Reducing Employee Turnover in Your Restaurant Every member of your staff is an individual with their

Subscribe now for great deals and industry tips! Sign up for our mailing list to have weekly discounts and industry knowledge sent right to your inbox.

From Our

At WebstaurantStore we love sharing our fun! Check out some of our weekly Instagram posts! We might even have a recipe or two to share!

View Posts
How do you enjoy your Saturday mornings? Make them great with our Core Glassware for a trendy and sleek morning drink. ⠀ Image by: @hungerthirstplay Cook up your favorite dishes with ease using this KitchenAid 4 qt. multi-cooker! This compact cooking system features 700W of power with over 10 different settings for tackling virtually any cooking task using one convenient countertop unit. Its step-by-step cooking modes take the guesswork out of cooking rice, risotto, soup, and yogurt from scratch to ensure consistent results every time, while its versatile selection of cooking methods allow you to create anything from slow cooked stews to sauteed skillets and stir fries. Try this Carlisle Sparta Chef Series pastry brush with nylon bristles at your restaurant, cafe, or bakery to help you make deliciously golden pastries and succulent meats with ease! This brush features durable nylon bristles that are the perfect softness for all your basting needs. These bristles have a high fluid retaining capacity, so whether you dip this brush in water, egg, sauce, marinade, or butter, it works to dispense liquid evenly over your pastries as opposed to absorbing it into the bristles.⠀⠀ ⠀ Enhance the look of your tabletop presentation with this Choice Windsor stainless steel medium weight flatware set. Choice flatware is ideal for daily use in high-volume venues, making it the perfect choice for cafes, bars, and family-friendly restaurants. Each piece from Choice's flatware line is designed not only to meet your needs, but to meet the needs of your budget as well. ⠀
Food Service Resources

Tips, guides, & advice

Explore Resources
  • Visa
  • Discover
  • American Express
  • MasterCard
  • Paypal