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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.

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