Tipping Out…Pooling Tips. Do’s and Don’ts

I figure it might be useful to put some real information up here. Please note that this is not meant to be advice tailored for anyone’s business situation in particular and these thoughts are my own and not those of AOC SF. for more on that, see this page.

So, I wanted to share some (finally) clear information on tip pooling. I’m not sure if others out there are as confused as I have been on this issue – what is legal, what isn’t…and how it relates to “tipping out”.

Thank you to Julie Chenedes, HR Consultant (email me for Julie’s info – she is great), for providing this recap in a clear and concise manner.

According to a California court, Labor Code Section 351 allows involuntary tip pooling. Therefore, an employer can require that an employee share tips with other staff that provide service in the restaurant.

In this regard, it’s DLSE’s (Division of Labor Standards Enforcement) position that when a tip pooling arrangement if in effect, the tips are to be distributed among the employees who provide “direct table service.”

· Such employees could conceivably include servers, bussers, bartenders, host/hostesses and maitre d’s.

· Employees who do not provide direct table service and who do not share in the tip pool include dishwashers, cooks, and chefs, except in restaurants where the chefs prepare the food at the patron’s table, in which case the chef may participate in the tip pool.

· Additionally, tip pooling cannot be used to compensate the owner(s), manager(s), or supervisor(s) of the business, even if these individuals should provide direct table service to a patron.

A tip is a voluntary amount left by a patron for an employee.

~versus~

A mandatory service charge is an amount that a patron is required to pay based on a contractual agreement or a specified required service amount listed on the menu of an establishment.

An example of a mandatory service charge that is a contractual agreement would be a 10 or 15 percent charge added to the cost of a banquet. Such charges are considered as amounts owed by the patron to the establishment and are not gratuities voluntarily left for the employees.

Therefore, when an employer distributes all or part of a service charge to its employees, the distribution may be at the discretion of the employer and the service charge, which would be in the nature of a bonus, would be included in the regular rate of pay when calculating overtime payments.

So, it seems that there are different rules which apply based on whether you have a service charge (mandatory) or allow patrons to tip (gratuity). Some restaurants (eg: Incanto in Noe Valley) have opted for a small (e.g.: 5%) service charge in addition to allowing guests to tip at their discretion. The use of the service charge allows restaurants to legally provide additional compensation to the back of house or management employees.

Note that this posting is NOT about the legality of an employer requiring that an employee declare a certain percentage of their sales as tips. Totally different topic.

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One response to “Tipping Out…Pooling Tips. Do’s and Don’ts

  1. What if the employer was saving part of the service charge every pay period in order to pay the salaried manager year round? i.e. taking $1000 out of every pay periods service charge pool, in order to pad the salaried manager’s salary. It was described to me as a savings account to pay the manager year round. However the amount was a percentage and was taken out no matter what with no answer as to what would happen to the extra funds at the end of the year if they were left over. In certain months this amount was much higher than the managers salary. Does the employer get to keep these amounts at the end of the year? Is it legal for them to subsidize this salary out of a service charge pool? This is from Oregon where we do not have tip credits as well so they are not being put towards our minimum wage. That is already paid by the employer. I am just confused by where the line is on legalities.

    Thank you

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