If you work in the restaurant service industry, you know that it can be challenging. From sore feet and back pain to dealing with difficult customers to coordinating among coworkers, there are many underappreciated aspects that go into creating a great dining experience.
The promise of good tips at the end of a long shift often makes the hard work worthwhile. To promote teamwork and cooperation among front-of-house staff—including servers, hosts, bartenders, bussers, and food runners—many restaurants implement a tip pool. In addition to incentivizing workers, tip sharing is a legally regulated practice under the Department of Labor’s Fair Labor Standards Act (FLSA). When a tip pool is utilized, but rules are not followed, this amounts to an employer stealing tips from employees.
Understanding Your Rights as an Employee in a Tip Pool
According to the U.S. Department of Labor, workers who customarily and regularly receive more than $30 in tips per month are considered to be tipped employees. Tips belong to the worker who receives them from a customer, except in cases where there is a sharing arrangement, i.e. a tip pool, among tipped employees.
FLSA tip pooling rules include:
- In most cases, a valid tip pooling arrangement must be between employees who customarily and regularly receive tips. For restaurants, this means front-of-house workers such as waiters, waitresses, and bartenders. It typically DOES NOT include back-of-house restaurant workers who do not customarily and regularly receive tips, such as chefs, cooks, dishwashers, and janitors. It also does not include restaurant owners, managers, or supervisors—even if they intermittently wait tables, tend bar, or perform other service staff work. (Note that different restaurants may have different standards for which workers are considered front-of-house and back-of-house.)
- Back-of-house workers may share in a tip pool if their employer pays the tipped workers who contribute to the pool at least the full federal minimum wage.
- Employers must notify tipped employees of any required tip pool contribution amount.
- Employers may not retain employee’s tips for any purposes other than tip pooling.
- Only tips that are in excess of tips used for the tip credit may be used for a pool. Tipped workers cannot be required to contribute a greater percentage of their tips than is customary and reasonable.
- Employers determine a structure for redistributing the tips among employees in the pool.
- FLSA’s tip pooling rules are only minimum requirements. States and cities may impose their own requirements.
Tip Pooling vs. Tip Sharing
Tip pooling is a legally-defined term by the FLSA. Tip sharing (i.e., “tipping out”) on the other hand, is a voluntary practice that some restaurants engage in. Tip sharing is usually a percentage of tips, sales, or category receipts paid to back-of-house employees. Because tip sharing is voluntary, it does not fall under the DOL’s jurisdiction. Employees who participate in tip-sharing don’t have to share their tips equally or with all support staff.
Tip Pooling and Credit Cards
DOL states that when tips are charged on a credit card, and the employer owes the credit card company a percentage on each sale, the employer may pay the employee the tip, less that percentage. For example, a credit card service charge of 3 percent means that the employer can pay the employee 97 percent of credit card tips. However, tips must be paid no later than the regular payday, and an employer may not withhold tips until being reimbursed by the credit card company. The same rules apply regardless of whether the tips are part of a pool, or are paid to a single employee.
Tip Pooling and Service Charges
Some restaurants charge a mandatory service charge, usually around 15%. When the employer sets the amount of gratuity through a service charge, that money is considered business income—not a tip for employees. It is therefore under the control of the employer.
Employer Consequences for Tip Pooling Violations
Employees who are required to pool tips with non-tipped employees may be owed a significant amount in damages. Courts typically require the employer to pay back the employee the tip credit (difference in the full minimum wage and the tipped hourly rate) for every hour worked when their tips were wrongfully paid to non-tipped employees. For example, if an employee was required to pool tips with a non-tipped employee and worked 40 hours for a year, damages would be calculated as follows:
$7.25-$2.13 (tip credit) * 40 hours * 52 weeks=$10,649.60
Further, in most instances, courts award liquidated damages or an amount equal to the regular damages. As you can see, the penalty for tip violations could be costly to an employer.
State and federal wage laws can be very complex. Many include quick filing deadlines. Workers who have questions about tip pooling and their rights should consider contacting our firm today to help you understand your rights and legal options., and help you pursue wages that have been wrongly withheld.