Who can legally be in a tip pool

Tips belong to employees

Under the federal Fair Labor Standards Act (FLSA), tips are the property of the employees who earn them. An employer may require a valid tip pool and set the percentages, but the pooled tips must be redistributed among employees; the employer may not keep any of it. (U.S. Department of Labor.)

A tip must also be a voluntary gratuity. A mandatory service charge — an amount added automatically that the customer cannot remove — is not legally a tip. It belongs to the employer, who may keep it or pay some of it out as wages, and it does not follow tip-pool rules. (U.S. Department of Labor.)

Managers, supervisors, and owners are excluded

Managers, supervisors, and owners may not keep any portion of employee tips or take a share of a tip pool, in any state. The only tips a manager may keep are tips from a customer the manager personally and solely served. (U.S. Department of Labor.)

Whether someone counts as a manager depends on their duties, not their job title. The Department of Labor applies the executive-exemption test: whether the person's primary duty is management, whether they regularly direct at least two other employees, and whether they have authority over hiring and firing or their recommendations on it carry particular weight. (29 C.F.R. § 541.100.)

The tip credit

A tip credit lets an employer pay a tipped worker a lower cash wage and count the worker's tips toward the rest of the minimum wage. The federal minimum cash wage for tipped employees is $2.13 an hour, and the gap up to the full minimum wage is the tip credit. If tips fall short in a workweek, the employer must make up the difference. (U.S. Department of Labor.)

The tip credit decides who else is in the pool

Whether back-of-house workers — cooks, dishwashers, prep — can be in the pool depends on how the tipped staff are paid:

• If the employer takes a tip credit, the pool may include only workers who customarily and regularly receive tips: servers, bartenders, bussers, runners, and hosts.
• If everyone is paid the full minimum wage in cash with no tip credit, the pool may include back-of-house workers. This was permitted by the 2018 amendment to the FLSA in the Consolidated Appropriations Act.

Credit-card processing fees may be deducted from tips only where state law allows it, and never to the point where the worker falls below the minimum wage.

States can be stricter

Federal law is the floor; a state's rules may add limits but not remove them. Seven states — Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington — do not allow a tip credit, so tipped workers there are paid the full minimum wage in cash. Minnesota and New Hampshire require tip pooling to be voluntary rather than employer-mandated. Each state's tipped wage, tip credit, and pooling rules are listed on the tip pooling rules by state pages, with the date each was reviewed.

If a tip pool is invalid

An employer that runs an invalid pool — a manager taking a share, or back-of-house included while a tip credit is claimed — can lose the tip credit and owe each affected worker the difference up to the full minimum wage, plus the tips that were wrongly kept. Federal tip complaints go to the U.S. Department of Labor's Wage and Hour Division, and many states have their own labor department. The FLSA prohibits retaliation against an employee for filing a wage complaint (29 U.S.C. § 215(a)(3)).

Related

General information, not legal advice. Confirm with your state labor department or the U.S. Department of Labor.