What Tip Pooling Means for the Hospitality Industry
Tip pooling is a common practice used in the hospitality industry, which involves collecting at least 15% of the tips that employees receive during their shift to put into one big “pool.” The money is then split between all of the tipped employees to ensure all supporting staff receives their fair share of the money earned.
The Fair Labor Standards Act (FLSA) allows tip pooling to take place as long as employees voluntarily participate or are only obligated to pool with other tipped employees an amount that is considered customary and reasonable.
The Department of Labor (DOL) allows the following occupations to participate in tip pooling:
- Counter personnel who serve customers
Tip Credit in Association with Tip Pooling
A tip credit lets employers pay their staff less than federal minimum wage and use their tips as wage credit to meet federal minimum wage requirements. And, while each of the 36 states currently allowing tip credits differs from the federal government regarding minimum wage requirements and the percentage employees must contribute to the tip pool, companies must follow four conditions.
- Employers must inform each employee of the tip credit policy
- The employee must be recognized as a “tipped employee” by FLSA standards
- Employers must be able to prove that the employee’s tips equal or exceed the federal minimum wage per hour each week
- Employers cannot take credit for any tips collected by employees
Because not all states allow a tip credit to be used towards the contribution of its states minimum wage, hospitality driven companies should know and understand their state and federal laws regarding tip pooling.
When it comes to running a business, there are numerous rules and regulations you must follow to stay compliant. Unfortunately, it can be challenging for many small and mid-sized companies to keep up with the consistent changes.
Working with a Professional Employer Organization (PEO) like Professional Employer Resources, Inc. (PER) enables your business to stay compliant while compensating staff appropriately. For additional information on how we can assist you, call us today at 888-599-4991 or fill out our free cost analysis form online.