Tips, tip pooling, and tip credits: What can restaurant legally do with its tips?

Employees in a restaurant setting often receive tips, and employers frequently take a “tip credit” toward the minimum wage they must pay (allowing an employer in Arkansas to pay $2.63 per hour to tipped employees if they receive at least $8.37 per hour in tips to make up the difference with the state’s $11-per-hour minimum wage). “Tip pooling” is another common practice, where all of the tips are collected and then evenly distributed among the restaurant’s employees. If employers choose to implement a tip pool or tip credit, however, they must keep the following guidelines in mind to make sure their policy complies with the Fair Labor Standards Act (FLSA).

Nontipped employees and tip pools

An employer that does not take a tip credit (i.e., directly pays all employees at least $11 per hour regardless of tips received) may allow nontipped employees—such as cooks and dishwashers—to participate in a tip pool. Such an arrangement has one limitation: Managers and supervisors are prohibited from taking part in the tip pool.

What if employer takes tip credit?

If an employer chooses to take a tip credit, the guidelines get much more complicated.

A business that takes a tip credit may allow only employees who customarily and regularly receive tips to participate in the tip pool. In other words, those who don’t customarily receive tips (e.g., cooks) may not participate in the pool.

Tipped employees and nontipped work