For waiters and waitresses, bartenders, valets, bellhops, baristas, and other workers in the restaurant and hospitality industries, tips are not just a “bonus” for providing good service. Tips pay the rent and put food on the table. These gratuities can and often do make up the bulk of these employees’ take-home pay.
But the way tips are provided, handled, and distributed, and how tips are treated under the law, can make accounting for them more complicated than for regular hourly wages. It also makes restaurant and hospitality workers vulnerable to employers’ attempts to take the gratuities that workers earned.
What Is Tip-Pooling?
Tip pooling is the collection of all (or a portion of all) the tips collected from directly tipped employees to be put into one large “pool.” From there, tips are redistributed among a larger group of employees. The idea behind a tip pool is to ensure that all employees are fairly compensated for their work, especially when there are multiple services being rendered and single points of payment. For example, in a busy coffee shop, one person is in charge of taking orders, several people are in charge of preparing the orders, one person is in charge of delivering the orders to the customers, and another person is in charge of bussing the tables after the customers leave. Tip pooling ensures that all employees, from the order taker to the busser, whether they are handed a tip or not, receive their fair share of the customers’ tips.
Participation in a tip pool largely depends on whether a tip credit is taken. If a tip credit is taken, only customarily and regularly tipped employees (e.g., servers, bartenders, valets) can be required to contribute their tips to a pool to be shared with other tipped employees. However, if a tip credit is not taken, tipped employees can be required to contribute their tips to a pool to be shared with other tipped employees and customarily non-tipped “back of house” employees (e.g., dishwashers and cooks).
Management (e.g., managers and supervisors) cannot participate in tip pools. In the past, employers would sometimes require employees to pool their tips and even attempt to put a portion of those tips in their own pockets. But a 2018 amendment to the Fair Labor Standards Act (FLSA) made such practices illegal. Specifically, the FLSA now provides that “[a]n employer may not keep tips received by its employees for any purposes, including allowing managers and supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.”
Accordingly, restaurant and hospitality employees who are subject to a tip-pooling arrangement will keep 100 percent of those tips for themselves.
What Are Tip Credits?
As noted, the FLSA now prohibits employers from keeping tips regardless of whether the employer takes a “tip credit.” Acknowledging the substantial role tips play in restaurant and hospitality workers’ take-home pay, the laws in several states allow employers to pay employees less than the minimum wage (the sub-minimum wage) so long as the amount of tips the employee receives makes up the difference between the wage they receive and the regular minimum wage.
For example, as of March 29, 2019, Michigan’s minimum wage is $9.45 per hour. But for businesses who employ tipped workers, the minimum cash wage is $3.59 per hour, with a tip credit of $5.86 per hour. If the tips an employee receives plus the wages they are paid fall short of the standard minimum wage, the employer must pay for any shortfall.
Not all states allow for tip credits, however, and still require that tipped workers receive the full minimum wage regardless of how much their employees earn in tips.
Contact the Overtime Pay Attorneys for a Free Consultation to Discuss Any Tip-Pooling or Tip Credit Concerns
If you work in a restaurant or the hospitality industry, you know how much you rely on tips to support yourself and your family. If you have concerns about how your employer treats your tips or whether they owe you more than what you receive in wages, please call the Overtime Pay Attorneys at (833) 768-7924 or contact us online for a free consultation.