Look Before You Leap Into the Pool! Tip Pools Explained

By Linda H. Evans,
Senior Associate.


The Big Texan Steak Ranch restaurant (home of the 72-ounce steak dinner) recently paid $800,000 to settle a labor department dispute in which it was alleged that the restaurant took too much of a bite out of tips to workers. A 2011 audit found minimum wage and record-keeping violations.


A tip credit is a common way for restaurants to supplement the wait staffs’ wages to meet the minimum wage standard. But use of a tip credit and a tip pool can be tricky business and, if not done correctly, there will be trouble! As this restaurant learned, it is important to follow the DOL guidelines on tipped employees to avoid problems. Here are a few of the basics: employees who regularly receive more than $30 per month in tips are considered tipped employees. Tips are the property of the employee, and the employer is prohibited from using an employee’s tips for any reason other than as a credit against its minimum wage obligation. The current federal minimum wage is $7.25 per hour, and the employer is allowed to pay the tipped employee $2.13 per hour with the balance of the hourly wage ($5.12) being made up by tips. A tip pool is an arrangement whereby all the tips are pooled. The only employees who may be in the pool are those who usually receive tips, such as wait staff, bussers, bartenders, and counter personnel.