Tip pooling—the practice of requiring all tipped employees to contribute a certain amount of their tips into one collective pool which is then divided evenly among that group of employees—is one of the several ways that restaurants approach making sure that staff receives a fair wage. Besides the debate over whether or not tip pooling increases or decreases staff motivation, even just sorting out how tip pooling might work isn’t as straightforward as it might seem because figuring out what does and doesn’t constitute a valid tip has to be squared away first.
Here’s a quick refresher: Restaurant labor laws regarding cash tips, check tips, and service charges are the same across the U.S.—any tip left as cash or part of a cashier’s check is considered to be 100% the property of the employee. Service charges, on the other hand, are not considered tips and are the property of the establishment. Credit card tips are where it gets murky. Some states require the establishment to give the employee 100% of the tip left on a credit card, while others allow restaurants to subtract the credit card processing fee from the tip.
This handy graphic from Card Fellow is a good place to start your individual research based on your state to figure out what does and does not count as a tip eligible for pooling.
Now that we’ve got a grasp on what is and isn’t eligible for pooling, here’s what you need to understand in order to know your rights about tip pooling in restaurants.
Valid Tip Pools Can Include Untipped Staff
In March 2018 a new law, explained more below, rolled back a previous requirement that said tip pools could not include untipped staff. Now, tip pooling CAN include back of house (unitpped) staff. As Gov Docs explains: “The bill did roll back the 2011 regulations that prohibited sharing of tipped employees with nontipped employees, but only in cases where the employer pays the higher minimum wage. This means when workers are paid the full minimum wage, it is legal for tipped employees to share their tips with non-tipped employees. However, the bill prohibits employers, managers, or supervisors from collecting or retaining tips made by employees.”
Pooled Tips Cannot Go To Your Employer
Your employer is not allowed to participate in the tip pool either. As mentioned above, only traditionally tipped staff can participate, which explicitly excludes restaurant owners and, in some states, the same goes for managers and supervisors as well. Often, bussers, servers, counter staff and service bartenders are included in tip pooling… not employers. While your employer can legally require you to participate in a pool, they are not allowed to benefit from it.
Tip pooling is different from tip sharing or tipping out.
Tip Pooling Cannot Detract From Minimum Wage
By law, your employer is required to pay you minimum wage and tip pooling can’t detract from that. Especially if your employer takes a tip credit (ie, you get paid less than the federal minimum wage because you’re a tipped employee), be sure to keep an eagle eye on your income each day and make sure you’re getting at least the federal minimum wage, if not more depending on your state’s laws. If contributing to your tip pool takes you below minimum wage, that’s illegal. You’re not required to participate in the tip pool in that instance.
What Are The Penalties For Employers Not Following Tip Pooling Laws?
Tip pooling is a hotly disputed practice.
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Some people argue for it, claiming that it equalizes pay among tipped and non-tipped employees. Others will say that the practice has been corrupted and is often used as a mechanism for justifying lower wages for traditionally non-tipped restaurant employees like dishwashers and cooks.
Whatever way you feel about tip pooling, there’s one thing that’s sure across the board: there are laws that regulate tip sharing in restaurants.
If you work in a restaurant that pools tips and you’re not sure whether or not the rules are being followed, here is a quick rundown of tip pooling laws and the penalties for breaking them.
Tip pooling laws vary by state
Federal law allows for tip pooling under the Fair Labor Standards Act (FLSA), but below that some states regulate it if they don’t flat out outlaw it. Some states—take Arizona, for example—allow tip pooling, while states like California, allow it but regulate it further than federal law does. States like Minnesota ban it all together. The place to start in your investigation of whether or not your restaurant’s practices are legal or not begins with your local laws.
In order to figure out what the penalties are for breaking tip pooling laws, you have to first figure out whether the extent to which tip pooling is allowed and regulated in your state. A good place to start your search is state’s department of labor website.
Tip pooling has changed as of 2018
The Trump administration passed a bill that rolls back many of the regulations that prohibited tip sharing, according to Gov Docs. The March 2018 bill was passed, allowing for tip pooling as long as workers are paid full minimum wage. However, it also clearly outlined a fine for violating tip pooling laws:
“Any employer who violates section 3(m)(2)(B) shall be liable to the employee or employees affected in the amount of the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer, and in an additionally equal amount as liquidated damages,” notes Gov Docs.
However, it’s important to note that this specific penalty for violating tip pooling laws only exists at the Federal level. If tip pooling is happening in your state where it is illegal or you restaurant’s practices are in violation of the regulations around tip pooling in a state that allows is, there’s a good chance that there are additional penalties that employers can face on top of federal ones.
The unfortunate thing about tip pooling laws is that the exact penalties aren’t always clearly and readily available, but what’s important to know is that they do exist. If you think your employer is violating laws, don’t hesitate to reach out to get advice from your state’s Department of Labor office.
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