Until recently, tip sharing laws weren’t commonly discussed in the media: unless you worked in the industry, odds are, the topic just wasn’t something the average diner thought about. But with similar cases against food delivery services such as DoorDash gaining nationwide attention, tipping lawsuits are a reality all players in the dining industry need to familiarize themselves with – and learn how to avoid.
Another source of confusion has been the language around tipping laws: “tip pooling” and “tip sharing” are oftentimes used interchangeably. This is actually incorrect and can lead to misunderstandings amongst your staff! Having a crystal clear picture of the similarities, differences, and FAQ about tip pooling and sharing will help you avoid any confusion about which of your teammates can participate.
Is Tip Pooling Legal?
When done correctly and in a way that still empowers each one of your tipped employees to meet their legally mandated minimum wage – yes, tip pooling is legal! In fact, it can even legally be made mandatory by a business owner.
The only time tip pooling is illegal is when it’s applied to back-of-house (BOH) teammates who don’t directly engage in customer service AND the business owner has elected to take the tip credit. If there’s no tip credit involved, BOH team members can also participate in tip pooling.
What is Tip Pooling?
Tip Pooling is when tips are equally distributed amongst the people in the pool. This ensures that everyone gets an equal share of tips regardless of any outside factors such as foot traffic, party size, or the total amount of guests served and engenders a sense of teamwork.
Pooling tips often times leads to less distractions and conflicts arising from “who gets sat in what section” or “That’s not my table, not my problem.” The obvious downside to this is when you have a team member that is not as productive as the rest of the members of the pool. When done right, pooling can definitely increase overall productivity especially when the team has a certain amount of authority to pick and choose who is included on the team.
Tip pooling is used to split tips equally among a team. Example: Having a bartender pool so that one bartender can take orders and one can make drinks the whole time OR having all the servers in the dining area pool tips together.
What is Tip Sharing?
Fun fact: ever wonder the real reason that your favorite nail salon always prefers cash tips? Usually employees do not have to pay taxes on them (unless they declare them) and the cash tips are usually not considered when using automated tip distribution software such as Tiphaus.
Unlike tip pooling, tip sharing is when a portion of tips are sent to supporting staff.
Tip sharing is used to take a portion of tips from a tip earner and give it to someone that supported them. Example: All servers tip out 3% of food sales to the cooks OR bartenders send 20% of their tips to the barback while the barback.
All the same laws apply to tip sharing as apply to tip pooling. Which means that you cannot force a server to share tips with a cooks when tip credits are being used BUT you can make them to share tips with a host because hosting is generally considered a tipped position.
The easiest option for both tip sharing and pooling is a software that helps you automatically calculate the required percentages – no constant coordination, monitoring, or check-ins required.
TipHaus is a turnkey automated tip distribution software created to integrate directly with the Point-of-Sale system in place. TipHaus was created by Restaurant consultants to save managers and staff members time, money, and potential legal liability.