Tips belong to the employee whom the customer left them for. Employees and employers may not make an agreement that the employee will relinquish tips to the employer.
However, if there is a tip pooling arrangement the employee may be required to relinquish tips received for distribution in accordance with the tip pooling arrangement.
“Tip pooling” is an arrangement in which all or a part of the tips of the contributing employees are combined into a common pool and then divided among the participating employees according to a pre-determined formula. A tip pooling arrangement is valid when:
- The contributing employees are notified of the arrangement before the pay period in which it will be used
- The share of each contributing employee is at least 85% of the employee’s tips before the employee contributes to the tip pool (see “tips accruing” below)
- Only employees who customarily and regularly receive tips receive a share from the pool (servers, bartenders, service bartenders, counter personnel, and bussers)
The requirement that the employer pay “tips accruing” to the employee is satisfied if the employee in a tip pooling arrangement receives 85% of their actual tips before pooling or their share received from the pool, whichever is greater. The tipped employees must retain at least 85% of the tips they receive, which means the employer must maintain accurate and complete records of the tips received and the amount of tips earned under the tip pooling arrangement.
In many cases, employers either facilitate or require tip-sharing arrangements. There are several reasons why an employer may favor a mandatory or facilitated tip pool, including:
- A belief that a tip pool creates friendlier and better service as employees work together, thus enhancing repeat business from customers
- Distributing tips to more employees will help management take full advantage of the tip credit for more employees, thus reducing labor costs
- Redistributing tips to lower-tier employees results in less employee turnover, and management may be able to promote from within (for example, bus staff to wait staff)
- As one court has suggested, management might put in place tip pooling simply to flex managerial muscle
Besides the legal concerns, which will be addressed later, there are reasons why an employer may decide not to put in place or accommodate a tip pool, including:
- To encourage competition among wait staff, perhaps leading to increased productivity and table turns
- Not wanting to spend management resources administering the system
- Tip pooling has not been used previously and many long-term employees feel that individual tips belong to them
While tip pools are legally limited to servers, bartenders, service bartenders, counter personnel, and bus persons, there is case law expanding this list to the maître d’/host positions as well. Cooks and dishwashers are listed in the regulations as not being “tipped” employees. While this list is certainly not exhaustive of all the positions in a restaurant (e.g., dish polisher, sommelier, expediter), basically a “tipped” position is limited to those with significant guest interaction, that is, front-of-the-house positions. Managers and supervisors may not participate in a tip pool.
This is an area of the law that is evolving. If you are unclear whether an employee can be included in a tip pool, you should confer with legal counsel to assess the position according to current rulings.