Tip Pooling vs Tip Sharing
A commonly asked and confusing
question is the distinction between tip pooling
versus tip sharing. Because tip sharing agreements
are so common, employers ought to know how gratuities
can be lawfully distributed among employees.
A mandated tip pooling policy
describes a system where all tips are placed
in a “pool.” That money is distributed
among all employees – waiters, cooks,
table busers, and hosts – whether or not
they deal directly with customers. This system
is illegal.
A tip sharing policy, on the
other hand, can be legal, depending on whether
the sharing of tips by certain employees is
mandated or discretionary. By law, tip sharing
cannot be mandated as a working condition. An
employer may not force or reprimand employees
for not participating in a tip sharing arrangement.
Instead, a tip sharing arrangement
can be recommended by the employer, and only
direct-service
employees may distribute tips at their discretion
because the IRS has stated that tips are their
property. Tips can be shared only among employees
who customarily and regularly receive tips.
Therefore, participation in a tip sharing agreement
is at the election of the employees.
Note the kind of employees
who may participate in tip sharing – only
direct service employees. This means tips may
be shared among those employees who deal directly
with the customer on a routine basis. These
employees are typically waiters and table busers.
Cooks probably would not fit under this category
as they do not usually deal directly with the
customer.
A gratuity is not considered
tip income within the control of the regularly
tipped employee. A gratuity is a charge that
is directly added for services rendered as determined
by management, e.g. adding an 18% gratuity for
parties over 10 people. This amount is considered
wages, and is within the control of the employer,
not the employee. Employers may distribute a
gratuity at their discrestion.
A tip sharing policy may be
legal if done by the employees. However, an
employer-mandated tip pooling policy is always
illegal. |
