Question:
I do most of the customer service, especially during peak morning periods as well as catering sales, so it doesn’t seem fair that 100% of tips go to my employees. I’m thinking of changing the pooling structure with the new year (and after the holiday rush) to handle this more equitably (and make it more reflective of my effort). I have entry-level employees making well over $20 an hour after tips. What do you think?
– Bakery owner, Philadelphia
Answer:
Tipping questions were by far the most asked-about topic of 2018, so it’s fitting that we are starting 2019 with one. I think there are a few reasons that questions on this topic are so popular: The rules change and vary locally, the system is illogical, and the system seems unfair to many restaurant owners. Some operators misstep because they are good at solving problems and putting efficient systems in place, so try to do the same with tipping. Unfortunately, the law does not allow for a lot of creativity on this topic.
I understand owners’ perspectives: You put in long hours, care more about your business than anyone else does, and have to deal with countless thankless issues from taxes to plumbing. I see how frustrating it is that my teenage daughter, who works from 5-9 p.m. taking takeout orders at a pizzeria, leaves with a wad of cash at the end of her shift that equates to more than the hourly wage of the cooks and managers. A broken system to be sure.
There are a few instances where it is acceptable for owners to be tipped directly—but not as part of a tip pool, where tips must remain the property of the employees, even if administered by the restaurant. At the federal level, the U.S. Department of Labor states, “A tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit. The FLSA prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer. For example, even where a tipped employee receives at least $7.25 per hour in wages directly from the employer, the employee may not be required to turn over his or her tips to the employer. … 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.”
So my first piece of advice is simple: Keep your hands off the tips.
But let’s look also at what prompted the question: You feel your work is not being properly compensated and feel that your employees may be overcompensated in comparison. While sharing tips is not the answer, consider what you can do to make the structure more equitable. Are you drawing a salary as a manager reflective of your effort? Are you starting tipped employees at a competitive wage? Are there other management functions you could be doing during the time you’re working the counter?
As always, keep in mind that state and local regulations vary. Check with your attorney and restaurant association to be sure your policies are in compliance.
More on tip pooling here.