A Complete Guide To Tip Pooling (Plus Methods and Benefits)

Jamie Birt

Updated January 3, 2023

Published September 29, 2021

Jamie Birt is a career coach with 5+ years of experience helping job seekers navigate the job search through one-to-one coaching, webinars and events. She’s motivated by the mission to help people find fulfillment and belonging in their careers.

A person muddles ingredients in a coffee shop or small restaurant setting. A milk steamer and two other pieces of equipment are in the foreground.

In the hospitality sector, employees receive tips as a supplement to their salaries or wages. Restaurants, bars and other establishments can choose to handle tips in a variety of ways, and tip pooling is one option for establishments that may have positive effects on teamwork among the staff. If you receive tips at your job, you can benefit from learning more about tip pooling in the workplace.

In this article, we explain what tip pooling is and how to use it, describe the requirements, compare tip pooling versus tip sharing and list the benefits and challenges.

What is tip pooling?

Tip pooling is a practice where staff at a restaurant, bar, coffee shop or another establishment all put their tips into a pool that their employer then divides evenly among those employees. Employers can do tip pooling for any tipped employees and sometimes for non-tipped employees. Tip pooling has certain rules and regulations from the government to ensure it's fair for the employees.

The primary employees who pool tips include waitstaff, bartenders, baristas and anyone else who receives tips as a regular part of their job. Depending on the workplace and location, nontipped employees such as dishwashers, kitchen staff, hosts and others may also be a part of the tip pooling. Federal law restricts management and owners from receiving pooled tips. Some establishments that might use the tip-pooling method include:

  • Table service restaurants

  • Drive-thru restaurants

  • Coffee shops

  • Bakeries

  • Bars

Related: How To Calculate Allocated Tips

Tip pooling methods

While the specifics of tip pooling can vary depending on the location, any tip that's left for an employee in cash or check then goes into the tip pool. When a customer leaves a tip through their credit card, it's more complicated. In some states, employers can reduce the tip based on the credit card processing fee; in other states, 100% of the credit card tip goes into the tip pool. The employer divides tips evenly among any eligible employees, which may or may not include nontipped employees.

Some employers make tip pooling mandatory, while others make it optional. It's important for employers to explain what percentage of tips you can expect, along with the method for dividing tips. Some common tip-pooling methods include:

  • Shifts: Some employers may divide the workday into specific shifts, then split pooled tips among the employees present during that shift. For example, the two baristas who open the coffee shop share all the tips from the morning shift.

  • Hourly: An employer may pool and divide tips based on the hours each employee works. For example, if three employees work an eight-hour shift, and three employees work a four-hour shift, the employees with longer shifts receive bigger tips.

  • Role-based: Sometimes employers divide pooled tips based on your specific role. For example, a server might receive a larger tip than a hostess because of the difference in the two positions.

  • Point-based: The point-based method means that each role receives a certain number of points based on the level of responsibility. Then, the employer calculates the amount of tip money each employee receives based on their points.

Related: How To Get Better Tips: 20 Approaches That Work

Rules for tip pooling

The government regulates tip pooling to ensure employers paid employees fairly, so there are many rules that may affect your workplace. There are federal laws regarding tip pooling, but some states have their own laws and others ban tip pooling altogether. If you're unsure what the laws in your area are, it's helpful to research them so you understand the regulations.

The Fair Labor Standards Act (FLSA) is the federal law that details the rules about tipping and tip pooling. The Consolidated Appropriations Act of 2018 updated details in the FLSA to prevent employers from participating in tip pools with their employees. The Department of Labor also shares these rules from the FLSA:

  • Non-tipped employees can be a part of tip pools, but managers, supervisors and owners cannot.

  • It's required for your tips and base wage to add up to at least minimum wage, even when you participate in tip pooling.

  • Employers can deduct credit card processing fees from employees' tips, and tips belong entirely to employees and not their employers.

Related: 15 Customer Service Jobs That Pay Well

Tip pooling vs. tip sharing

Tip pooling and tip sharing are similar, but they have differences. In a tip-sharing system, the tipped employees share a percentage or a specific amount of their tips with non-tipped employees. Tipped employees keep the tips they earned directly in a tip-sharing system, but non-tipped employees receive a portion of those tips as well. Since some states restrict non-tipped employees from participating in tip pooling, tip sharing can be a good option for establishments that want tips to be shared with non-tipped staff.

Related: 7 of the Highest-Paying Hospitality Jobs

Benefits of tip pooling

Here are some benefits of tip pooling:

Encourages teamwork

Tip pooling requires everyone on staff to work together to earn higher tips, which can encourage teamwork. Employees may be more likely to help one another when they aren't competing for tips. Tip pooling can make the staff feel more like a team since every time a customer has a good experience, it benefits the entire staff.

Related: The Importance of Teamwork (Plus 11 Ways a Team Benefits From It)

Increases group productivity

Tip pooling can also encourage the entire staff to be more productive because they want to maximize their tips. This can include helping other employees who might struggle to earn the same level of tips as others, or working to solve problems that interrupt productivity. Employees who feel motivated to earn higher tips may motivate other employees to ensure the staff receives more tips.

Related: 10 Team-Building Activities for Customer Service Professionals

Makes employees more responsible

Tip pooling can increase responsibility among employees, as it requires group productivity and success. This can cause some employees to encourage others or help them carry out certain tasks so that everyone earns better tips. It can also make employees more aware of how they perform because their work directly affects the amount they receive in tips that day.

Related: Guide To Group Problem Solving

Challenges of tip pooling

While tip pooling has many benefits, there are some challenges to consider. These challenges include:

Potential for hurting high-performers

Tip pooling might impact high-performing employees' tips, as those who might earn more in a standard tipping format may notice their tips get smaller. This could cause high-performing employees to feel frustrated or to do less. If you're a high-performing employee and you're concerned about sharing your tips with others, consider speaking with your employer about your options.

Potential for workplace stress over tips

In a tip-pooling situation, employees share their successes and failures through their shared tips. This might cause stress or workplace conflict over the divided tip amount. Some employees may feel others aren't doing as much and negatively impacting their income, while others may feel that it's less important. Workplaces in this situation can benefit from positive and direct communication about the situation to minimize stress and conflict.

Related: 11 Ways to Help Stressed Employees in the Workplace

This article is for information purposes only and is not intended to constitute legal advice. Consult with an attorney for any legal issues you may be experiencing.

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