Navigating fair compensation for restaurant employees can be an intricate undertaking. And few aspects are as potentially challenging as considering whether to pool tips. As a new establishment or a seasoned brand, crafting a fair and transparent tip pooling policy can enhance employee morale and streamline operations. But crafting that policy requires a balance of equity, legal compliance and accountability.
Under a valid tip pooling arrangement employees can be required to share their tips with applicable employees but under no circumstance can an employer, including managers and supervisors, be included in the tip split.
Employers can require employees to “pool” tips, if it meets the requirements of the Fair Labor Standards Act (FLSA) and state law. Some state laws will trump the federal law when it comes to minimum wage requirements.
Below are “best practices” for setting up a tip pooling policy.
Create a tip pooling policy
A tip pooling policy should be in writing and employers should have every employee acknowledge the policy. A best practice would be to include the tip pooling policy in the employee handbook. Tips that are included are cash tips left on the table or in a tip jar, as well as credit card tips. The policy should include:
- Purpose of the policy
- Who is eligible, by position, and who is NOT eligible for tips
- Note that the tip pooling policy follows the federal and state guidelines, and all tips, cash and credit card, are 100% taxable and will be run through payroll to reflect both employee and employer taxes.
- Have each employee sign and date the policy for acknowledgment as all employees must be notified by the employer that they are participating in a tip pool.
Choosing a tip pooling arrangement
Traditional
- Traditional tip pooling arrangements are limited to occupations in which the employee regularly receives tips, including waiters, bellhops, bartenders and any counter personnel that serve customers. All employees who typically receive tips. Employers may not compel tipped employees to pool tips with those who perform non-tipped work such as cooks, dishwashers and janitors under the traditional tip pooling arrangement.
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