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Can tip pools be doled out based on performance?

tip jar

Question:

I experienced a tip pool where servers were rated and received tips at 60, 80 or 100 points based on performance such as check average and total sales. In our restaurant, gratuities are distributed via paycheck and staff receive equal portions per hour based on job title. However, there is no adjustment given if one person performs better than the other or carries a majority of the workload. Are there any limitations prohibiting unequal tip distribution according to a ranking system such that there are tangible metrics established?

– Mark J McBride, Bartender/Consultant, Grapevine, Texas

Answer:

It is a commendable goal to look at performance metrics to make sure your employees are performing to their potential and have incentive to excel. On the surface, there is nothing preventing an operation from using performance-based metrics to provide bonuses, provided everyone is making full minimum wage or higher. Where you will run into problems, however, is in using tips rather than wages to do so. What you are proposing sounds like management administering the tip pool in a nonequitable way. Because tips belong to the eligible employees, I think this would be a hard structure to defend legally. From the U.S. Department of Labor Fact Sheet:

Tipped employees are those who customarily and regularly receive more than $30 per month in tips. Tips are the property of the employee. The employer is prohibited from using an employee’s tips for any reason other than as a credit against its minimum wage obligation to the employee (‘tip credit’) or in furtherance of a valid tip pool. Only tips actually received by the employee may be counted in determining whether the employee is a tipped employee and in applying the tip credit.”

Specifically, I think you’ll have problems here:

Tip Pooling: As noted above, the requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips. The FLSA does not impose a maximum contribution amount or percentage on valid mandatory tip pools. The employer, however, must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each tipped employee ultimately receives, and may not retain any of the employees' tips for any other purpose.”

By reallocating the employee’s tip not based on position or hours worked but by your performance metrics, I think your employees could successfully argue that you are retaining employees’ tips for other purposes (namely providing bonuses for exceptional performance at the expense of others).

In my opinion, some employees pulling extra weight is a reality of life. While it’s not fair, it is typical, and I would encourage your operation to think through other bonus or incentive structures to encourage and reward top employees without messing with the tip pool. If you truly want employees to sink or swim on their own, consider moving to a nonpooled model.

As always, consult with your attorney and restaurant association, as local regulations vary. More on tip pooling rules here

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