How tip pooling works under federal law, who can and cannot be included, how the tip credit changes the rules, common distribution methods and how to keep records that hold up.
The terms are often used loosely. A tip pool generally means tips from a group of employees are combined and then divided by a formula. A tip-out, or tip sharing, usually means an individual tipped employee gives a set portion of their tips or sales to other staff, such as a server tipping out the bartender and busser. The legal rules on who can participate apply to both. For tip-outs specifically, see our restaurant tip-out guide.
To record clock-ins, breaks and overtime automatically, see EZTime time and attendance software.
Your tip pool setup is complete.
These are the federal minimums. See the tip credit glossary entry for more detail.
Several states, including California, Minnesota, Nevada, Oregon and Washington, do not allow employers to take a tip credit at all, so tipped employees must receive the full state minimum wage before tips. Some states set their own limits on who can join a mandatory pool, how much can be required, or how pools must be documented and disclosed. Cities can add rules too. Always check the law where your employees work; our state labor law pages are a good starting point.
| Role | With tip credit | Without tip credit |
|---|---|---|
| Servers, bartenders | Can be included | Can be included |
| Bussers, server assistants, barbacks, hosts (where customarily tipped) | Can usually be included | Can be included |
| Cooks, dishwashers, prep staff | Cannot be included | Can be included |
| Managers and supervisors (as defined above) | Cannot be included | Cannot be included |
| Owners and the employer | Cannot be included | Cannot be included |
Whether a specific role is customarily and regularly tipped depends on the facts of your business, not just the job title. State rules may differ.
Federal law does not set a formula. The most common methods are:
Hours-based methods depend on accurate time records. If hours are wrong, every share is wrong.
The Department of Labor’s fact sheets settle most tip pool questions. In plain terms:
The practical result: if you want cooks and dishwashers in the pool, you generally need to pay everyone in it the full cash minimum wage and give up the tip credit. Run the numbers both ways before deciding, and check your state’s rules, which can be stricter.
A restaurant does not take a tip credit and pays everyone above the state minimum wage. On a Saturday the pool holds $1,200. It uses a points system: servers 10 points per hour, bartenders 8, bussers 5 and cooks 4.
| Role | Hours | Points per hour | Total points | Share |
|---|---|---|---|---|
| Server A | 8 | 10 | 80 | $300.94 |
| Server B | 6 | 10 | 60 | $225.71 |
| Bartender | 8 | 8 | 64 | $240.75 |
| Busser | 7 | 5 | 35 | $131.66 |
| Cook A | 10 | 4 | 40 | $150.47 |
| Cook B | 10 | 4 | 40 | $150.47 |
| Total | 49 | 319 | $1,200.00 |
Each point is worth $1,200 ÷ 319 = about $3.76. Each person’s share is their points multiplied by that value, rounded to the cent. The rounding should be checked so the shares add up exactly to the pool. With more roles, more shifts and changing hours, doing this by hand gets error-prone quickly. Our tip pooling calculator does the math for any mix of roles, hours and points.
Tips received by employees are taxable income, and employees must report cash tips to the employer. Distributed tip pool amounts are generally reported as tips for the employees who receive them. Keep daily records of the pool total, the hours and roles used in the calculation and each employee’s share. These records protect both the business and the staff if questions arise. See the shift tips summary template.
EZTime’s EzTip tip pooling feature calculates distributions from actual clocked hours, so shares are based on the same time records used for payroll.
Not under federal law if they meet the definition of a manager or supervisor: primary duty of management, regularly directing two or more employees and having hiring and firing authority or influence. They can keep tips they receive directly for service they directly and solely provide.
Under federal law, yes, if the employer does not take a tip credit and pays all employees at least the full minimum wage. If a tip credit is taken, the mandatory pool is limited to customarily tipped employees. Check your state’s rules too.
No. Federal law prohibits employers from keeping employees’ tips for any purpose. Some states allow deductions for credit card processing fees on tips, under strict conditions.
No law requires a tip pool, but an employer can generally require employees to participate in a valid tip pool that follows federal and state rules.
Tips, including shares from a tip pool, are taxable wages for income and payroll tax purposes. Employees must report tips, and employers must include reported tips in payroll.
Under federal law, yes, as long as it follows the rules: no managers, supervisors or owners keep tips, and if you take a tip credit, only customarily tipped employees can be in the pool. The FLSA does not cap how much each employee contributes to a valid mandatory pool. Some states add their own limits.
Under the FLSA, a manager or supervisor may keep tips received directly from a customer for service they directly and solely provided. They still cannot take a share of other employees’ tips or of a pool.
EzTip, EZTime’s tip pooling feature, divides the pool using the hours each employee actually clocked, so the split matches the time sheet.