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Tip Pooling Strategies for Restaurants

One Minute Takeaway

  • The rules regarding restaurant employees pooling their tips changed at the end of 2020.
  • Laws can vary depending on where you live (what state).
  • An official tip pooling policy document can help eliminate confusion in the long run.

Ask any group of restaurant employees together about pooling tips, you’re likely to get many strong opinions. The practice can be helpful in building teamwork among the staff, encouraging better service (and happier customers). However, there are several things to consider before setting up this arrangement.

Tip Pooling vs. Tip Sharing

First, to clarify tip pooling vs. tip sharing: tip pooling is the practice of taking all server tips and dividing them among the wait staff at the end of the shift. These tips can be divided by role or the number of hours worked. Tip sharing is when wait staff shares tips earned with back-of-the-house employees (dishwashers, for example) at the end of a shift.

When does tip pooling work best?

Both tip pooling and sharing can work for certain restaurants. Typically, these plans work best in environments where multiple staff members interact with a customer. For example, a bakery or café might have one person who takes an order, the barista who makes your frothy caffeinated treat, and yet another team member who plates your scone and cashes you out. Each individual helps to make your experience better, and your tip reflects your overall satisfaction with the service you received every step of the way.

Tip pooling also can work well in catering or event venues, where large parties need multiple people to ensure guests’ needs are met, and there generally is a standard service charge applied to the bill.

State Tip Pooling Laws and Regulations

When considering a tip pooling or sharing agreement, it’s helpful to understand the regulations around the practice before considering any plan. These regulations changed at the end of 2020, with new rules now allowing tip pooling to extend to back-of-the-house staff in certain cases. Some details of the new law and other considerations:

  • Tip pooling can now be extended to back-of-the-house staff in the seven states that do not allow a tip credit (Alaska, California, Minnesota, Montana, Nevada, Oregon, Washington). This has no impact in the 43 states where a “tip credit” is permitted. A tip credit means tips can be counted toward meeting the federal minimum hourly wage.
  • Tips can be pooled based on hours worked or role-based. Customer-facing staff may get higher percentage when compared to table bussers, dishwashers or host/hostesses.
  • Owners and managers cannot be part of a tip pooling arrangement or ask for employees to share tips.
  • New York, California, Indiana, Massachusetts and North Carolina have chain of service agreements, which stipulate tips can only be shared among people who are part of the team serving a customer.

Utah requires a valid tip pooling agreement or policy to be shared and signed by employees and employees must be notified in writing if there is a change to this policy.

Two states allow tip pooling with voluntary exceptions, as explained below:

  • In Delaware, employers can’t require the primary service worker to contribute more than 15 percent of received tips in mandatory pools.
  • In North Dakota, tip pooling is allowed only if more than 50 percent of employees agree to it.

Tip pooling cannot be required in Kentucky, Minnesota, Montana, New Hampshire and Wyoming.

  • In those states, tip pooling can only be implemented if employees voluntarily agree to it. Employees keep individual tips, but can choose to contribute an amount of their choice to a pool they’ve arranged on their own. These employees can ask managers or owners to facilitate the pool but cannot require any employee to facilitate.

If you live in a state that allows tip pooling (whether or not it’s required by law), it’s a good idea to create a workplace policy so everyone is on the same page. To start, outline who is eligible to be part of the tip pool. For example, some policies stipulate a minimum amount an employee needs to make each month to be eligible. You’ll also want to outline how tip credits are used to ensure hourly wages comply with the minimum wage law.

The above regulations are crucial to consider before starting a tip pooling program, but equally crucial is understanding your team’s dynamic, type of foodservice establishment and overall enthusiasm for the program before you set up a tip pooling system.

For information on how Paycor can help you with recruiting, hiring, onboarding and paying employees for your restaurant, contact a Paycor sales representative today!