HR Glossary | 4 minute read

Tip Pooling

A tip pool combines tips from several employees and shares them among eligible coworkers. Under the FLSA, an employer may require employees to take part, but the employer itself can never keep any of the money.

A common mistake is assuming managers can join because they work the floor. Since the 2018 amendments to the FLSA, employers and managers may not keep employees' tips, and who may share depends on whether the employer pays the full minimum wage in cash.

How Does a Tip Pool Work?

Employees contribute part of their tips to a common pot, and the pot is redistributed among eligible employees on an agreed basis. An employer that collects tips must fully distribute them by the regular payday for the workweek or pay period. If amounts cannot be determined before payroll, tips go out as soon as practicable afterward.

Tip splitting, often called a tip-out, is different. Servers hand part of their tips to a busser, and each person's retained share counts as that person's own tips.

If the employer takes a tip credit, the pool is limited to employees who customarily and regularly receive tips, such as servers, bellhops, bussers, counter staff and service bartenders. Cooks and dishwashers cannot join.

If every employee gets at least the full minimum wage in cash, the employer may also include back-of-house staff such as cooks and dishwashers in a mandatory pool.

Who Cannot Take Tips From a Pool?

Employers, managers and supervisors may not receive tips from any pool, however tipped staff are paid. Owners with at least a 20 percent equity interest who actively manage the business count as managers.

A manager may keep only tips received directly from a customer for service the manager personally and solely provides, such as the manager's own tables. Duties decide the status, not job titles.

How Do State Rules Change Tip Pooling?

When state law is more protective, employers must follow the stricter rule. California's Labor Commissioner allows involuntary pools only if they do not pay owners, managers or supervisors, even those who serve tables, and the policy must be fair and reasonable.

California courts have validated pools of employees who provide direct table service or are in the chain of service, so federal permission to include cooks does not settle the question there. Check your state labor department and your HR compliance requirements.

What Mistakes Do Employers Make With Tip Pools?

Three of the typical problems DOL lists recur around pools, and each one can turn a lawful pool into a violation.

Including cooks or dishwashers while paying a cash wage below the full minimum wage.
Letting a manager, supervisor or owner take a share of the pool.
Holding collected tips past the regular payday.

An employer that makes employees share with a manager may have to return the tips and pay the full minimum wage.

Pool eligibility depends on each person's role and hours, so clear shift scheduling matters. HR Cloud's Shift Planner shows managers who is scheduled and available, and employees can check schedules and get change notices on a phone.

Pool math stays with your payroll or point-of-sale process, because HR Cloud's pages do not describe tip distribution. See HR software for hospitality or request a demo.

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Frequently Asked Questions

Q: Can managers contribute to a tip pool?

A: Yes. Managers and supervisors may contribute to a mandatory pool but may not receive money from it, according to DOL's regulatory history.

Q: Is there a limit on how much employees must contribute?

A: The FLSA sets no limit on the percentage or amount in a valid mandatory pool, though state law may differ.

Q: Can a shift lead or head server join the pool?

A: Usually yes, unless they meet the manager test: managing as a primary duty, directing two or more full-time employees, and having hire or fire authority or weighted recommendations.

Q: Must employers tell employees about their pool contribution?

A: Yes, when the cash wage is below the full minimum wage. Employers must notify employees of any required contribution and may count only the tips each employee ultimately receives.

Q: What records must employers keep for a mandatory pool?

A: An employer paying the full minimum wage must record each employee who receives tips and the weekly or monthly amount, alongside regular employee records.

Q: Can DOL fine an employer for keeping tips?

A: Yes. DOL says it can assess civil money penalties against employers who take employees' tips, whether or not the violations are repeated or willful.