Tip Pooling

Many service employees receive tips as part of their compensation. Service employees include waiters, waitresses, bartenders, cleaning staff, movers, counter people, and taxi drivers. An employee may be required to pool tips with other employees rather than keep tips for himself or herself. Do you have any legal rights in connection with your tips?

In general, tips belong to employees rather than an employer. However, there are valid tip pooling arrangements that require employees to give their tips to certain other employees. The employer is never part of the pool, although the employer may enforce the pooling arrangement.

It is important to know that under federal law and under many state laws, a mandatory service charge that is added to a large table of diners or a catering bill is not considered a tip. The employer can keep the money designated as a service charge even if you were not left a tip because the customer assumed the service charge would be going to you. In most states, employers have a choice about how much of the service charge goes to the employee. However, in a few states like Washington and New York, employers are required to make it clear to the customer whether the company is keeping the service fee or distributing it to their employees.

Your employer can pay you less than the minimum hourly wage under the Fair Labor Standards Act, 29 U.S.C. § 203(m), as a tipped employee, as long as you receive enough in tips to make up the difference. This is known as a tip credit. The credited tips must be money actually received by the employee, such as tips that are distributed after deducting charges for credit card sales, rather than the total amount of tips written by customers. The least the employer may pay you is the applicable minimum wage minus the “tip credit.”

If you don’t earn enough in tips in a particular shift to meet the minimum wage, your employer must pay the difference. States that do not allow a tip credit are California, Minnesota, and Oregon. In other states, if your employer is not paying you appropriately based on the tip pooling rules, you can bring a lawsuit in federal court. When the amount that you could potentially recover through such a lawsuit is low, it may be appropriate to file a class action with others in your tip pool.

How Tip Pooling Works

There can be confusion surrounding how much of what a customer paid is considered a tip for purposes of tip pooling. For example, credit card companies often need to be paid a processing fee for processing any bills paid by credit card at a restaurant. While some states do permit the employer to subtract a proportionate share of the tip to cover expenses like processing fees, other states require the employer to give the employee the full tip.

Many states permit a form of tip pooling whereby all employees subject to the pool have to contribute at least a portion of their tips. The pool is divided among a specified group of employees. This is common in some restaurants. All the servers pool their tips so that the host or hostess and the busboys can receive some of the tips. Employees cannot be asked to pay more into the pool than what is customary and reasonable. Moreover, the employee cannot be required to pay any part of the tips that the employer is counting towards his or her minimum wage into the tip pool.

The pool of employees who receive tips cannot include employees who don’t typically receive their own tips, such as dishwashers or cooks. The employer is not allowed in the pool, even if the employer works as a server for some shifts. In some states, managers or supervisors are also excluded from the tipping pool.