What Restaurants Need to Know about Tip Pooling

What Restaurants Need to Know about Tip PoolingFor those working in the restaurant or service industry, tips received from happy customers can often add up to more than an hourly wage. Working at a busy, high-end restaurant for one shift might result in a server leaving her shift with hundreds of dollars in tips. Employers can get away (legally) with paying less than minimum wage to tipped employees because of their tip income, but only so long as they make as much in tips to cover the difference. This practice is called taking a tip credit. And while these tipped earnings are the property of the employee, employers can require these tipped be shared with other staffers through something called tip pooling. Here’s what restaurants need to know about tip pooling.

What is Tip Pooling?
This practice essentially says that tipped employees, think servers and bartenders, must contribute their tipped earnings to a “pool” that is then shared with a group of non-tipped employees. These non-tipped employees could be hostesses, dishwashers, cooks, etc. The combined tips in the pool are then distributed to the employees based on a predefined hourly basis, percentage, etc.

Tip pooling is a great way to create a greater sense of teamwork among your employees. No one job in the restaurant is considered more financially beneficial than another, so any type of bitterness falls to the wayside. Pooling tips also means your employees will work harder, since everyone’s cooperation in providing a great restaurant experience will pay off equally as well to everyone working.

Important Tip Pooling Facts
Remember the tip credit we mentioned above? If you, as a business owner, do not take a tip credit, you’re able to loop your back-of-house staffers like dishwashers and cooks—folks that don’t interact with customers at all—into tip pooling. If you do take tip credits, your tip pool “can only include the customer-facing employees who would ordinarily receive more than $30 in tips per month” according to an article from Quickbooks.

Business owners and employers are also required to disclose any tip pooling policy to their staffers. In addition, managers and supervisors are not allowed to participate in a tip pool, nor can they ask employees to give money to other managers or supervisors. So, while employers can require participation, they can’t themselves benefit financially from it.

Bear in mind that tip pooling laws differ from state to state, so it’s important to make sure you’re following your area’s protocols. A list of states and their regulations regarding tipped employees can be found here on Nolo’s website.

If your restaurant is thinking about tip pooling, be sure you’re well aware of the legalities surrounding this practice in your state. You may be considering tip pooling because of our current slowdown in in-person dining due to COVID-19, or perhaps you want to boost morale. Whatever your reasoning, follow these tips to make your implementation a success.