Restaurant Tip Pooling Laws & How to Manage

Tip pooling is a common practice in restaurants where all tips from customers are collected to form a “pool” and then divided among employees at the end of the shift. Managers have control of how this operates in their establishment, but some states have differentiating tip pooling laws. In this article, we cover how it works and the most common laws.

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What is Restaurant Tip Pooling

Managers of restaurants can choose to collect all tips from paying customers to make a tip pool and redistribute it among employees. Each restaurant tends to have its own procedures. Some choose to divide the tip pool among only customer-facing roles like waiters and bartenders, while some choose to share with all hourly workers in the restaurant.

Tip pooling can improve team relations by encouraging everyone to work harder to increase the tip pool and result in more tips for everyone. This team effort can create a pleasant work environment where everyone helps each other. On the other hand, tip pooling can also cause problems between team members. If some servers slack off in hopes of another server completing their tasks, there might be tension caused by evenly splitting tips.

How Tipped Employees are Paid

Tipped employees are paid through a combination of a minimum “cash wage” paid by the employer plus an additional allowance for tips from customers to meet the overall minimum wage requirement for food service workers. The federal minimum wage is $7.25/hour but states have additional minimum wage laws. 

U.S. federal law requires tipped employees to be paid at least $2.13 per hour directly from the employer in order to meet the minimum wage with tips. If the total hourly wage is short of the requirement after tips, the employer must pay the difference. 

Tip Credit Towards the Minimum Wage

There is also a maximum tip credit allowed toward the minimum hourly wage for tipped employees. Each state has specific definitions to be considered a tipped employee. Your state either follows federal guidelines, does not allow a minimum cash wage, or sets its own minimum cash wage above the federal distinction.

Tip Pooling Laws by State