Tip Pooling: Laws, Staff Sentiment, and More

A metal tip jar that reads "Good Karma Tips" placed on a wooden counter next to a POS system at a restaurant that practices tip pooling.

In bars and restaurants, servers and staff earn the majority of their income from tips. Unfortunately, several external and often unpredictable factors could affect how much they make in tips when they’re on the clock. For instance, they may get stuck with a table that leaves a poor tip or assigned to a lunch shift when the menu items aren’t as expensive as the dinner ones. Tip pooling is one practice that can improve fairness and pay equity among staff. However, there are several drawbacks to this method in terms of staff sentiment. Learn more about this remuneration method and whether it is the right choice for your establishment. 

What is tip pooling?

Tip pooling is the practice of collecting tips from all of the employees and putting them in one large “pool” so that the money can then be divided and redistributed among employees. Typically, only “tipped employees” or those who earn more than $30 per month in gratuity participate in the pool. How the money is divided will vary by employer. Some bars and restaurants split the tip pool according to hours worked, number of customers served, etc. In some cases, the tip pool is simply divided evenly among the number of qualified employees. 

Tip Pooling vs Tip Sharing  

Tip sharing is another common term in the restaurant industry, but it is not synonymous with tip pooling. With tip sharing, the employer decides on a set distribution rate, which can be a percentage of all tips, category receipts or total sales. These funds are distributed to the staff and are entirely separate from the tip pool. 

Regulating Tip Pooling

Recently, federal regulations have been instituted to help ensure fairness and equity in pooling tips. There may also be state laws in place that offer additional oversight of this practice. Here are just a few of the legal issues to consider when it comes to pooling tips:

  • Tip pools are only considered legal when they actually benefit participants. Distribution needs to be based on levels of contribution. For bars and restaurants, this typically means the number of customers served or hours of customer contact. 
  • Unless state laws say otherwise, all tip pooling policies are only recommendations and should not be treated as mandatory.
  • Employees must at least earn minimum wage.
  • Employees must voluntarily participate, and bar and restaurant managers and owners are not allowed to ask employees to share tips.
  • Some states require a written agreement that outlines policies.

New Tip Pool Law

In March 2018, there were some important changes made regarding tip pooling and untipped staff. Now, according to the Fair Labor Standards Act, back-of-house employees can participate in tip pooling, however, they must earn minimum wage and they are exempt from a tip credit. The latest bill “rolled back the 2011 regulations that prohibited sharing of tipped employees with non-tipped employees, but only in cases where the employer pays the higher minimum wage. This means when workers are paid the full minimum wage, it is legal for tipped employees to share their tips with non-tipped employees. However, the bill prohibits employers, managers or supervisors from collecting or retaining tips made by employees.” 

Do Employees Prefer Tip Pooling?

The amount a bar or restaurant employee earns in tips can vary widely based on their approach to service, turnover rates, and the size of tables they are assigned. Some servers are natural salespeople and have a knack for upselling specials and top-shelf drinks. Their tables will have higher bills and tips. Other servers work hard to be attentive so that patrons feel like they have received special treatment, which can also yield generous tips. Finally, one server may get assigned a large party and spend the whole evening working hard for one table. So, the question becomes: how does tip pooling affect these top earners?

High producing and earning staff members may not want to share their tips with other workers who aren’t carrying their weight. Hard workers can end up going home with less money than they feel they have earned. Essentially, tip distribution won’t always be completely fair because lazy workers may be covered by their colleagues. This can breed resentment among the staff.

Benefits of Tip Pooling

On the other hand, dividing tips has the potential to make a stronger team. If everyone is working towards a common goal, staff won’t be as hesitant to help each other out and make sure that smaller, yet necessary tasks are taken care of. Side work won’t be neglected and the overall presentation of the restaurant can improve as each individual works to contribute to the team. Tip pooling can also reduce conflicts over table assignments. Ultimately, tip pooling can be a team-building tool in the right setting and with the right people.  

While tip pooling isn’t the right choice for every bar or restaurant, it is important to take everyone’s opinions into account and thoroughly understand the pros and cons before making a decision. In cases where employees won’t feel cheated or underpaid as a result of tip pooling, it can strengthen the entire team, increase sales, win over return customers, and improve the overall atmosphere of the establishment. 

FAQs

What is tip pooling?

With tip pooling, all the tips are collected and put into one large pool, and then the total amount is divided among employees.

How does tip pooling work? 

In most cases, only tipped employees participate in tip pooling and the money can be divided up according to the bar or restaurant’s own policy. For example, they may divide tips evenly or according to the number of customers served or hours worked. 

What is the difference between tip pooling and tip sharing?

Tip sharing pays employees according to a predetermined distribution percentage. This can be a percentage of the total tips or sales and is meant to be separate from the tip pool. 

What are the tip pooling laws? 

Laws can vary by state, but in general, tip pooling must pay at least minimum wage, supervisors are not allowed to ask employees to participate, and the tip pool must be designed in a way that benefits employees. In 2018, a new bill also made it legal for back-of-house employees to participate in pooling tips. 

Can an employer require tip pooling? 

No, pooling tips is only legal when it is voluntary. It cannot be made mandatory.

Is tip pooling fair? 

It depends. In some cases, hard-working, top-earning servers and staff end up going home with less money. Lazy workers can take advantage of the system and not pull their weight or pocket some of their tips without fully contributing to the tip pool. At the same time, pooling tips can help workers earn a fair amount if they get stuck with low-tipping customers or a slow shift. In the right environment, pooling tips can also strengthen a team and motivate them to take on smaller tasks and work as a unit. Pooling tips isn’t the best choice in every situation, but it can be beneficial in some instances. 

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