Tip Pools

If you run a business where employees receive tips, and you have (or want to start) a "Tip Pool" so that tips are shared with all employees, it is critical that you follow these federal rules:

General Rule: Money from a mandatory tip pool should be shared only with employees who normally receive tips (such as waiters, table bussers, etc.). Tip pool money should not be shared with back-of-house employees who do not customarily receive tips (dishwashers, cooks, etc.).

There is an exception to this rule - if tipped employees receive a direct cash wage of at least the federal minimum wage (currently $7.25/hr.), then the tip pool money can be shared with cooks, dishwashers, and other employees who do not customarily receive tips. For example, if you pay your tipped workers $7.25/hr. and you collect all tips into a tip pool, the law allows you to share money from that tip pool with all dishwashers, cooks and other employees who do not normally interact with, and receive tips from, your customers. However, if you pay your tipped employees a cash wage of less than minimum wages (such as $2.13/hr.), then the law does not allow you to share tip pool funds with non-tipped employees.

Following these rules will help protect your company from significant fines and penalties that could come from an invalid tip pool. If you have any questions, feel free to reach out to Employer-Lawyer, PLLC. We would be happy to review your tip pool practices to ensure your company is in compliance with federal law.