Tip Pooling

What Is Tip Pooling?

When a hospitality business requires employees receiving tips to pool a portion of their tips together, this is known as mandatory tip pooling. While “tipping out” occurs when tipped employees voluntarily contribute some of their tips to support staff, “tip pooling” is different as business owners require tipped employees to pool a portion of their tips. The pooled money is then given out to tipped employees according to pre-arranged system.

Tip pooling is permitted under both federal and Tennessee law, but only if employers follow certain requirements. However, some employers may not comply with requirements under the law. If you have fallen victim to illegal tip pooling violations, we encourage you to contact our experienced Tennessee wage and hour attorneys at The Higgins Firm.

Meeting Minimum Wage through Tip Pooling

The Fair Labor Standards Act (FLSA) establishes the federal minimum wage standard for employers across the country. Accordingly, Tennessee employees must receive the equivalent of $7.25 per hour worked.

However, employers do not have to provide this entire amount if employees receive tips averaging an hourly rate exceeding $5.12. FLSA sets a base minimum wage for tipped employees at $2.13 per hour. The base minimum wage of $2.13 per hour for tipped employees plus hourly tips averaging $5.12 per hour equals $7.25, which is Tennessee’s minimum wage. To be considered a tipped employee, a worker must receive more than $30 per month in tips.

Under the law, employers must make sure that employees earn at least minimum wage. Some employers may violate minimum wage law requirements in its tip pooling practices when tips are redistributed and the tipped employee earns less than minimum wage.

FLSA Tip Pooling Violations

Employers also violate tip pooling laws by taking a portion of an employee’s tips and redistributing them illegally. Under FLSA, an employer cannot take tips from an employee because tips are considered to be the employee’s sole property. Although it may thereby seem illegal, tip pooling is legal if it is “fair and reasonable” (which is less than 15% of a shifts tips), the redistribution of the tips is consistent, and the tip pool is distributed among commonly tipped employees.

Violations can occur when an employer keeps a portion of the tip pool or if an employee who isn’t tipped takes a portion of the pool. A manager or owner may not take money from the tip pool. In addition, an employer may not pay from the tip pool to employees who do not receive tips but receive the wages of a tipped employee. Employers may attempt this scheme to comply with minimum wage requirements.

Only certain employees qualify as tip pool participants. The U.S. Wage and Hour Division has included employees qualifying for tip pool participants as:

  • Wait-staff
  • Bartenders
  • Maîtres d’
  • Bellhops
  • Counter personnel serving customers
  • Bus employees

The Wage and Hour Division has also suggested a number of positions that should never qualify for tip pools. Those positions include dishwashers, cooks, janitors, and laundry room attendants. In addition, others not qualifying for tip pooling participation include managers or any individual (1) with the power to hire and fire, (2) who supervises, plans schedules, or controls the conditions of employment, (3) that determines an employee’s pay, and (4) maintains employment records.

Employers in Tennessee are liable for employee’s underpaid or unpaid wages. The law allows claims for violations of minimum wage law to extend back three years. If you believe that your employer has wrongfully underpaid or withheld pay from you, contact one of our Tennessee wage and hour attorneys at The Higgins Firm.