Tip pools are common in the services industries, including among restaurant, car wash, spa, salon, casino, and other employees. Although some tip pools are legal, many are not. Watch out for these common pitfalls in employer-mandated tip pools.
What is a Tip Pool?
A tip pool is a policy requiring you to "tip out," or to pool some or all of your tips to be shared with other employees. While there is nothing illegal about requiring employees to share tips with others in the chain of service - for example, sharing tips with the back of house team - it is illegal for your employer to take any part of your tips. This includes your manager. It is illegal for your manager to participate in your tip pool.
What is a Valid Tip Pooling Arrangement?
Your employer may require you to belong to a tip pool but cannot (1) require you to share your tips with your employer, (2) require you to share your tips with managers or supervisors, or (3) take deductions from your tips (for credit card charges, for example).
Can I Be Require to Participate in a Tip Pool?
Yes. While tips belong to the employee or employees for whom the tip was paid, California law allows an employer to require that employees who personally helped out in the chain of service be compensated for their work in serving the customer. However, the division of the pool between back of house, front of house, and other employees in the chain of service must be "reasonable."
The bottom line is this: You can be required to share tips with other employees who actually provide service to the customer leaving the tip, but if your employer takes a cut of the pool for himself—or even managers or workers on other shifts—your employer is committing wage theft.
Can my Supervisor Participate in the Tip Pool?
No. As a general rule, employers and "agents of employers," i.e., supervisors, are prohibited from participating in tip pools. Thus, supervisors cannot participate in a tip pool. There is a limited exception for "agents" of the employer who personally provide service to patrons. Typically, this occurs when tips are left in collective “tip boxes” and where the shift supervisor also performed services for the patrons who left the tips they were allowed to share in them.
Do I Have to Share Mandatory Gratuities With Other Employees?
It depends. State and federal regulators have taken the position that mandatory service charges are not considered "tips" or "gratuities" left for a particular employee. Thus, they belong to the restaurant and not the employee. While service charges generally belong to the restaurant under state and federal law, numerous local cities have enacted laws governing "service charges," particularly in the restaurant industry. For instance, Santa Monica's minimum wage ordinance generally prohibits mandatory service fees from going to the house or management. Depending on where you live, then, municipal law may entitle you to a share of service charges and may prevent managers from sharing in service charge pools.
Can My Employer Deduct Credit Card Charges From My Tips?
No. Employers cannot deduct credit card surcharges from employees' tips. If the employer chooses to allow patrons to pay tips by credit card, the employer must pay its employees the full amount of the tip indicated on the credit card slip, without deductions for credit card payment processing fees. Moreover, you're entitled to your credit card tips by the next regular payday after the patron authorized the tip.
Have further questions about your employer's tip-pooling and tip-deductions policies? Contact us for a free consultation.