Tips and gratuities can make up a significant portion of many workers’ earnings. In addition to restaurant workers, employees in other settings such as beauty salons, car washes and valet services routinely receive tips from customers.
So, what happens to the cash tip that you handed to the person who washed your car? The business may require the employee to place the tip in a “tip pool.”
What is Tip Pooling?
Tip pooling is the practice of collecting tips given to employees and then distributing the pooled amount evenly among all the business’s tip-eligible employees. In a restaurant setting, for example, tips given to individual food servers may be pooled and distributed among all the wait staff.
Who is Eligible to Participate in Tip Pooling?
According to federal regulations, tip pooling may be used for (1) direct and (2) supporting work that is part of a “tipped occupation”. Direct work includes tasks such as delivering food, moving luggage or styling hair. Work that directly supports the tipped occupation may be tasks such as folding napkins and organizing silverware, sterilizing salon rooms between customers or cleaning a valet stand.
Tip pooling may not apply to:
- Supporting work that is performed for a substantial amount of time (i.e., cleaning, food preparation, etc.)
- Job roles that do not customarily and regularly receive tips, such as dishwashers, cooks, chefs and janitors.
- Managers and supervisors, except in specific instances where the manager is tipped for a service that he or she directly and “solely” provided.
What are Employers’ Responsibilities Regarding Tip Pooling?
If employers choose to use tip pooling, they must make sure that their tip pooling policy complies with the Fair Labor Standards Act (FLSA).
In 2020 and 2021, FLSA regulations were updated to protect tipped workers. These rules expressly prohibit employers, including managers and supervisors, from keeping employees’ tips. They also address the circumstances under which employers can take partial tip credits against their minimum wage obligations based on tips received by employees.
The rules clarified that while managers or supervisors may not take tips from tip pools for themselves, they are not prohibited from contributing money to mandatory tip pools.
See Tip Regulations under the Fair Labor Standards Act (FLSA) and an example of an employer tip pooling policy here.
If you need guidance on compliance with the FLSA and other human resource administration responsibilities, please contact MarathonHR for assistance.