Is your tip pool legal? A Q&A for service industry employees

Tip pools are common in the services industries, including among restaurant, car wash, spa, salon, casino, and other employees. Although some tip pools are legal, many are not. Watch out for these common pitfalls in employer-mandated tip pools.

Julian King
August 06, 2018

What's a tip pool?

Your employer has a tip pool policy if you are required to place some or all of your tips into a collective pool to be redistributed to other employees. Your employer may be illegally diverting your tips if it (1) requires you to share your tips with your employer, (2) requires you to share your tips with managers or supervisors, or (3) allows your employer to take deductions from your tips. 


What's the legal basis for prohibitions on tip pools and tip sharing? 

California Labor Code section 351 prohibits employers and their agents from taking any portion of an employee's tip. Specifically, "[n]o employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron . . .. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for." 

This typically means that is a customer leaves YOU a tip, the tip belongs to you: Your tips are your wages.


Can I be required to share tips with other employees?

Yes. Noting that Labor Code section 351 provides that tips belong to "the employee or employees" the tip was paid, given, or left for, a tip pool is allowed when it is clear that the patron is leaving a tip to reward multiple employees' collective service. See Leighton v. Old Heidelberg, Ltd., 219 Cal. App. 3d 1062, 1068 (1990). 

Thus, while employer-mandated tip pools are legal, to be correctly administered, the California Department of Labor requires tip pools to be "reasonable." Specifically, the Department limits tip pools to employees who personally contribute to the chain of service.

The bottom line is this: You can be required to share tips with other employees who actually provide service to the customer leaving the tip, but if your employer takes a cut of the pool for himself—or even managers or workers on other shifts—your employer may be committing wage theft.


Can supervisors participate in the tip pool?

Not usually. As a general rule, employers and "agents of employers," i.e., supervisors, are prohibited from participating in tip pools. Thus, supervisors cannot participate in a tip pool unless they provide service to customers. 

There is a limited exception for "agents" of the employer who personally provide service to patrons. Typically, this occurs when tips are left in collective “tip boxes” and where the shift supervisor also performed services for the patrons who left the tips they were allowed to share in them.


Do tip-pooling rules apply to mandatory "service charges"?

It depends. State and federal regulators have taken the position that mandatory service charges are not considered "tips" or "gratuities" left for a particular employee. Accordingly, section 351 probably does not prohibit the employer from distributing mandatory service charges as they see fit, assuming the establishment is not misleading consumers as to where the charge is going. 

While service charges generally belong to the restaurant under state and federal law, numerous municipalities have enacted laws governing "service charges," particularly in the restaurant industry. For instance, Santa Monica's minimum wage ordinance specifies that "[a]n employer shall distribute all services charges in their entirety to the Employee(s) who performed services for the customers from whom the Service Charges are collected. No part of these amounts may be paid to Employees whose primary role is supervisory or managerial." Moreover, employers are also prohibited from "deduct[ing] any amount from wages due an Employee on account of a Service Charge." Depending on where you live, then, municipal law may entitle you to a share of service charges, and may prevent managers from sharing in service charge pools.


Can my employer deduct credit card surcharges from my tips? 

No. The plain language of section 351 prohibits employers from taking credit card surcharges from employees' tips. If the employer chooses to allow patrons to pay tips by credit card, the employer must pay its employees the full amount of the tip indicated on the credit card slip, without deductions for credit card payment processing fees. Moreover, you're entitled to your credit card tips by the next regular payday after the patron authorized the tip. 

About The Author

Julian Burns King graduated with honors from Harvard Law School and previously practiced at Quinn Emanuel Urquhart & Sullivan LLP and Bird Marella Boxer Wolpert Nessim Drooks Lincenberg & Rhow, PC. She has represented plaintiffs and defendants across a range of industries in complex antitrust, ...

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