Tip-Pooling / Tip-Sharing

  1. The U.S. Department of Labor's position is that tip-pooling / tip-sharing arrangements are permissible as long as the employees sharing in the tips have somehow participated in serving the customers who left the tips. Courts cases regarding tip-sharing arrangements focus on whether the employee interacted with the customer, assisted in providing the customer with a pleasurable dining experience, and/or provided "direct table service" before or during the meal, while the customer was seated. It is a good practice to put the tip-sharing policy in writing and have everyone acknowledge it.

  2. DOL regulation 29 C.F.R. § 531.54 sets out the requirements for a valid tip-pooling arrangement, including a prohibition against sharing of tips with managers, supervisors, or owners, distribution of tips no later than the regular payday for the workweek in question, limitation of the tip pool to "employees who customarily and regularly receive tips", notice to employees of the tip pool contribution amount, limitation of the tip credit to the amounts actually received from the pool by employees, and inclusion of cooks, dishwashers, and similar employees in a tip pool if the employer pays tipped employees at least the full minimum wage. These requirements are in addition to the other requirements outlined in 29 C.F.R. § 531.59(b) for taking the tip credit for tipped employees.

  3. DOL Field Operations Handbook § 30d04: Tip pooling.

    1. The requirement that an employee must retain all tips does not preclude tip-splitting or pooling arrangements among employees who customarily and regularly receive tips. The following occupations have been recognized as falling within the eligible category:
      1. waiters
      2. bellhops
      3. counter personnel who serve customers
      4. busboys/girls (server helpers)
      5. service bartenders
      It is not required that all employees who share in tips must themselves receive tips from customers. The amounts retained by the employees who actually receive the tips, and those given to other pool participants are considered the tips of the individuals who retain them, in applying the provisions of sections [203(m)] and [203(t)].
    2. A valid tip-pooling arrangement cannot require employees who actually receive tips to contribute a greater percentage of their tips than is customary and reasonable. For enforcement purposes, Wage and Hour will not question contributions to a pool where the net amount of tips contribute (after return of any tips from the pool) does not exceed 15 percent of the employee's tips. However, only those tips that are in excess of tips used for tip credit (e.g., where the maximum tip credit is taken, those in excess of 40 percent of the minimum wage) may be taken for a pool. If such requirements are met, it is not necessary that the pooling be voluntarily consented to by the employees involved (notwithstanding Reg. 531.54).
    3. Tipped employees may not be required to share their tips with employees who have not customarily and regularly participated in tip pooling arrangements. The following employee occupations would therefore not be eligible to participate:
      1. janitors
      2. dishwashers
      3. chefs or cooks
      4. laundry room attendants
      However, it does not appear that Congress ... intended to prevent tipped employees from deciding, free from any coercion whatever ..., what to do with their tips, including sharing them with whichever co-workers they please. Tips given to such co-workers as are listed in this subsection may not, however, be used as a tip credit.
    4. ... In the case of host/hostesses, head waiters, or seater/greeters and other employees not referred to above, facts should be developed showing the practices regarding their sharing of tips in the locality and type of establishment involved.

  4. Two DOL opinion letters address this issue:

  5. Section 203(m)(2)(B) of the FLSA makes it clear that owners and managers cannot keep employee tips, under any circumstances. That would include tips left by customers in tip jars, which the DOL and the courts would consider employee tips under the rationale that customers who leave tips in tip jars do so with the belief that the tips will end up in the hands of the staff who served them, not the owner or manager of the restaurant. The only time that an owner or manager would be permitted to keep a tip would be if the evidence showed that a customer meant the tip for the personal benefit of the owner or manager.

  6. Service charges or gratuities charged by an employer are not tips - see 29 C.F.R. § 531.55 - "A compulsory charge for service, such as 15 percent of the amount of the bill, imposed on a customer by an employer's establishment, is not a tip and, even if distributed by the employer to its employees, cannot be counted as a tip received in applying the provisions of sections 3(m)(2)(A) and 3(t)." However, the same regulation points out that if distributed to employees, gratuities count toward any non-tipped wages that are due.

  7. Chau v. Starbucks, 94 Cal.Rptr.3d 593 3 (Cal. Ct. App., 4th Dist., July 2, 2009) - Section 351 (the California tipped employee statute) does not contain any language prohibiting an employer from equitably dividing tips placed in a collective box among the employees who provided the service.

  8. Budrow v. Dave & Busters of Calif., Inc., 90 Cal.Rptr.3d 239 (Cal. Ct. App., 2nd Dist., Mar. 2, 2009) - Bartenders who poured or mixed drinks that were brought to restaurant patrons at their tables could participate in tip pools established pursuant to statute making gratuities property of employees to whom they were paid, even if bartenders did not personally bring drinks to tables.

  9. Hosts are tipped employees: Kilgore v. Outback Steakhouse of Florida, Inc., a/k/a FMI Restaurants, Inc., 160 F.3d 294 (6th Cir. 1998): "an employer must inform its employees of its intent to take a tip credit toward the employer's minimum wage obligation." Hosts at Outback are "engaged in an occupation in which [they] customarily and regularly receive . . . tips because they sufficiently interact with customers in an industry (restaurant) where undesignated tips are common." "... one court has held that a tip pool that benefits a maitre d' is permissible under the FLSA. In Dole v. Continental Cuisine, Inc., 751 F. Supp. 799 (E.D. Ark. 1990), the district court upheld a mandatory tip pool where servers tipped out solely to a maitre d' who 'receives no tips directly from customers' and whose responsibilities included setting up the dining room, greeting and seating customers, serving the first drink to customers, and assisting servers in serving customers as needed."

  10. Etheridge v. Reins International, 91 Cal.Rptr.3d 816: The court explained that "[t]ip pools exist to minimize friction between employees and to enable the employer to manage the potential confusion about gratuities in a way that is fair to the employees."

  11. In the Ninth Circuit, the tip pooling rules apply only when a tipped employee is paid a cash wage of less than the federal minimum wage. "The FLSA does not restrict tip pooling when no tip credit is taken." (See Cumbie v. Woody Woo, Inc., 596 F.3d 577, 582 (9th Cir. 2010).) The 4th Circuit recently agreed with the 9th Circuit on that issue (Trejo v. Ryman Hospitality Properties, Inc., No. 14-cv-1485, 2015 WL 4548259 (4th Cir. July 29, 2015)).

  12. For tipped employees, it would not be legal to make deductions from tips toward a "breakage" fund. See the following two cases:

For information on the tip credit and overtime pay for tipped employees, click here.

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