A common practice in the restaurant industry is for tip earning employees to combine their tips for the day and then divide the earned tips amongst each other. This practice is called “tip pooling”. Another practice is where employees who earn tips divide the tip amongst the employees who helped to serve a specific customer. This is known as “tip sharing”. Many employers violate the laws that govern how tip pools and tip shares are to be managed. Here is what you need to know.
I. CAN MY EMPLOYER MAKE IT MANDATORY TO TIP POOL OR TIP SHARE?
Yes. Your employer (boss) can require that employees participate in a tip pool or a tip share. Additionally, your boss can set the percentage each person receives when tip sharing. However, your employer cannot handle the transaction, it must be done by the employees. Also, employers cannot require directly tipped employees to contribute a greater percentage of their tips to indirectly tipped employees through tip sharing or tip pooling than is customary and reasonable.
II. WHAT IS MY EMPLOYER NOT ALLOWED TO DO WITH THE TIP POOL OR TIP SHARE?
1. Your employer (boss) cannot make tipped employees distribute money in a tip pool to non-tipped employees.
a. People allowed to participate are generally:
i. Wait staff;
ii. Counter personnel who serve food or beverages to customers;
iii. Bus persons;
v. Service bartenders;
vii. Food runners;
viii. Captains who provide direct food service to customers; and
ix. Hosts who greet and seat guests.
b. People not allowed to participate are:
iv. Management; and
2. Your employer (boss) cannot be involved with the transaction of the tip pool or tip share.
If your boss or management in any way handles matters concerning the tip pool, then the tip pool becomes unlawful.
3. Your employer (boss) cannot make you contribute more to the tip pool than is customary and reasonable.
Generally, if after you receive your share of the tip pool, you receive less than 85% of your tips for that day, the tip pool is not customary and reasonable. For example if you earned $100.00 in tips that day, and you contribute that amount to the tip pool. Then if you receive anything less than $85.00 ($100.00 x 85%) back after the tip pool is distributed, then the tip pool is not customary and reasonable.
4. Your employer (boss) cannot make you contribute tips used for a tip credit to the tip pool.
Tips that you earn to offset a tip credit (see blog entry on tip credits for explanation) are considered wages so that you earn the minimum wage. Only tips earned over the amount used for tip credits may be placed in a tip pool
III. WHAT HAPPENS IF A TIP POOL OR TIP SHARE IS UNLAWFUL?
If a tip pool is unlawful then your employer is liable to you and your coworkers for any tip credit taken for the last 2 years or more (6 years under New York law). That amount may then be doubled for liquidated damages.
So for example, if your employer used the full $3.00 2014 NY tip credit for every hour worked, and you worked 40 hours that week, then for that week alone you would be entitled to $120.00 ($3.00 x 40 hours) for lost wages and then double for damages totaling $240.00 for 1 week ($120.00 x 2). For the total year you would be owed $12,480.00 ($240.00 x 52 weeks). For 2 years you would be owed $24, 960.00 ($12,960 x 2).**
**Disclaimer- Liquidated damages are not guaranteed, and this calculation is being used as an example. You are lawfully entitled to all unpaid wages and overtime not paid properly. However, the above is used as an example.
The information in this post gives you enough information to make you aware of the most common violations regarding tip pooling and tip sharing. If your employer has not followed the rules, then you should contact El-Hag & Associates, P.C today. The laws were put in place to protect working people and to make sure all employers play by the rules. Do not let violations slide and sacrifice your hard earned income for any reason.