Am I allowed to institute a tip pool? — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Am I allowed to institute a tip pool?

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Q. I manage a popular sports bar. May I institute a tip-pooling policy?

A. Under the federal Fair Labor Standards Act, in order for an employer to take a tip credit against the federal minimum wage, tipped employees (those who customarily and regularly receive more than $30 per month in tips) must be allowed to retain all tips they receive.

An exception to this requirement is a valid tip pool. Valid tip pools may be either mandatory or voluntary. Since you asked about wanting to “institute” a tip-sharing policy, let’s assume it’s mandatory.

In a valid mandatory tip pool, a tipped employee who is paid less than the minimum wage must be allowed to keep all tips received up to the minimum wage. For example, if you pay your wait staff $3.00 per hour, at the current federal minimum wage of $7.25 per hour, they must be allowed to keep the equivalent of $4.25 per hour in tips and cannot be required to contribute that amount to a pool.

Moreover, mandatory tip-pooling must only include those employees who have participated in some way in serving the tipping customers, and must not include employees who have not customarily and regularly taken part in tip-sharing arrangements.

Thus, according to the U.S. Department of Labor, waiters, bellhops, counter workers who serve customers, bussers, service bartenders, barbacks and customer-greeting chefs (such as sushi chefs) are all eligible to participate in tip sharing. Employees such as janitors, dishwashers, chefs, cooks and laundry room attendants are not.

As for other types of employees, tip sharing may be permissible if it is customary for your type of business in your locality. As always, do your research and document your decisions.

Finally, the employer must notify employees of any required tip-pool contribution amounts, and may not hold tips for any purpose other than for the tip pool.

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