Tips on Tips Part 2: Tip Pooling

While the FLSA says employers may not take a tip credit unless an employee retains all of his or her tips, this does not prevent tip-splitting or tip-pooling arrangements among employees who customarily and regularly receive tips,

provided the participants are not required to contribute a greater percentage of their tips to the pool than is customary or reasonable.

Employers often ask whether it is possible for management to run a tip pool or participate in operating one. The answer is a qualified “yes”—but employers should pay close attention to the following DOL guidelines on tip pooling:

Tip-pooling arrangements are only allowed among employees who customarily receive tips. The following occupations have been recognized as falling within the eligible category: bellhops, waiters and waitresses (including cocktail servers), counter personnel who serve customers, bus-persons, and service bartenders.

It is not required that bus-persons or others who share in tips receive tips directly from customers. Both the amounts retained by the servers, for example, and those given to bus-persons are considered the tips of the individual who retains them.

A valid tip-pooling arrangement cannot require servers to contribute a greater percentage of their tips than is customary and reasonable. For enforcement purposes, the DOL will not question pool contributions that do not exceed 15% of the employee’s tips. However, only tips in excess of the tip credit may be taken for the pool.

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