Tip Pooling Q&A

Your real-world questions answered by the Washington Hospitality Association

Q: Regarding employees declaring cash tips – what is the employer’s responsibility on this? If all employees don’t declare their cash tips, does this put the employer at risk, because the employer knows they’re receiving cash tips, but they aren’t declaring any? I’m just wondering what legal risk this puts on the employer?
A: The IRS requires employees and employers to keep an accurate record of their tips. Employees’ tips greater than $30/month are taxable wages for payroll tax purposes and not making proper withholdings or tax payments could lead to tax liabilities and penalties. Employees also face penalties if they fail to report their tips. It is a best practice to ensure any employees receiving tips are aware of their responsibility in claiming them. For IRS tip reporting requirements, click here or check out the HERO Manual. The association can’t give legal advice. If you need legal or tax advice, please consult your attorney or a tax professional.

Voluntary vs. Mandatory Tip Pools

Q: What is the difference between mandatory and voluntary tip pools?
A: Voluntary tip pooling is a house policy that all the employees (except owners, managers and supervisors) voluntarily participate in. For voluntary tip pools, employees may have asked the employer to help facilitate this model. Keep in mind that employers have a high burden of proof in demonstrating the tip pool policy was truly voluntary. Many employers have been unsuccessful in arguing this case.

Mandatory tip pooling is a mandatory, employer-imposed policy that has been established by ownership and/or management. It is required for tipped employees to participate in the tip pool, thereby sharing their tips (or a percentage of tips) with non-tipped employees who are not owners, managers or supervisors.

Q: What are the benefits of mandatory and voluntary tip pooling?
A: Mandatory tip pooling creates certainty that the front of the house and back of the house can be balanced. It controls the way a team can be rewarded for great customer experience. But, mandatory tip pooling policies have gray areas in management benefits and tip out amounts. Voluntary tip pooling models mean no restrictions among who can benefit. But, how do you legally assure your model is truly voluntary? Courts have sided with employees who reported being compelled or pressured by management to participate. Also, one employee may refuse to participate and there is nothing to compel them to follow the culture of the house. This could create morale issues.

Tip Pooling Models + Percentages

Q: We are a brewery. Is it legal for our front-of-house beertenders to tip pool with our brewers?
A: Absolutely! As long as the brewers are not managers or owners.

Q: What resources or laws provide firm parameters for sharing with heart-of-the-house team members?
A: The new tip pooling law does not legislate percentages or models for tip pooling with heart-of-the-house team members. The Washington Hospitality Association has a Tip Pooling: Best Practices resource that may be helpful.

Owner, Manager Participation

Q: Can managers directly receive tips?
A: Owners and managers can directly receive tips from customers. If you are a bartender, server or covering a shift, you are welcome to those tips.

Q: Can managers receive tips in a tip pool situation?
A: A manager or supervisor who is exempt cannot benefit from a mandatory tip pool. Employees who are exempt under Washington state law may not be part of a mandatory tip pool. Check out the eligibility of other supervisors and managers by connecting with an expert in the Washington Hospitality Association Advisory Network or consulting your attorney.

Q: I want my manager to be able to benefit from a tip pool and I’m confused. What is the difference between supervisor/manager and employee? Hire/fire, salary threshold?
A: Federal law strengthens the language explaining employers, managers and supervisors are never to benefit from a mandatory tip pool. In Washington state under the minimum wage law I-1433, the definition of employee and employer, manager and supervisor is much clearer. The definition of ‘employee’ is nonmanagerial, nonsupervisory workers, according to RCW 49.46.160. Only those individuals can benefit from a mandatory tip pool. Owners and managers are not barred from receiving tips directly from customers. They cannot receive tips that originated from another team member.

Q: Is it a good idea to pay a manager $22 an hour to give them a slight $0.50 advantage over the people who work for them? Will I ever have a manager again, because bartenders and cashiers will make more money?
A: If you want great managers your compensation must be competitive. You can contact the Washington Hospitality Association for wage data in your geographic area. Owners and managers are not barred from receiving tips directly from customers. They cannot receive tips that originated from another team member.

Q: I’m wondering if it’s bad practice for an exempt manager to be tip pooling with our beertenders? Everything I’ve read has said that the exempt manager who assists the servers for certain shifts, should still only be receiving their exempt salary and not be a part of the tip pool.
A: Correct. Owners, managers and supervisors cannot benefit from a mandatory tip pool. Owners and managers are not barred from receiving tips directly from customers. They cannot receive tips that originated from another team member.

Q: We have a front-of-house assistant manager who tip pools with other servers, but I’m assuming this is OK, because she is not exempt status even though she has a manager title?
A: Any server can put tips in a tip pool – owner, manager or not. The assistant manager cannot benefit from a mandatory tip pool even if he or she is bussing tables. This is the biggest gray area of the law – hourly leaders who are participating in some management roles and some hourly employee roles. Please talk with the association’s Advisory Network or your own attorney.

Q: Why can’t shift supervisors and managers who work the floor participate in the tip pool?
A: Here is what we know for certain: An owner cannot benefit from a mandatory tip pool. A manager or supervisor who is exempt and can hire or fire cannot benefit from a mandatory tip pool. Those who are exempt from the definition of employee under Washington state law may not be part of a mandatory tip pool. Check out the eligibility of other supervisors and managers by connecting with an expert in the Washington Hospitality Association Advisory Network or consulting your attorney.

Q: Our cafe manager participates in the tip pool, but because she’s managing less than 50 percent of the time and working alongside the regular crew most of the time, is she allowed to receive tips from the tip pool? The manager is not paid salary. She does scheduling, which she does from home, and logs in as “clerical.” She does do training and directs work flow. She does not hire or fire although we take her input if appropriate. She spends all her time making sandwiches, pizzas and scooping ice cream. She never logs in to the time clock under a café manager title.
A: Assuming this is not a voluntary tip pool, but rather a mandatory tip pool, here is what we know for certain: An owner cannot benefit from a mandatory tip pool. A manager or supervisor who is exempt and can hire or fire cannot benefit from a mandatory tip pool. Those who are exempt from the definition of employee under Washington state law may not be part of a mandatory tip pool. You are in a gray area and really should discuss the eligibility of this manager by connecting with an expert in the Washington Hospitality Association Advisory Network or consulting your attorney.

Q: I’m under the impression that an exempt manager can’t accept any tips from customers, even if it’s not a part of a tip pool. My colleague believes an exempt manager can collect tips from customers, but can’t be a part of a tip pool.
A: Exempt managers can accept tips directly from customers. He or she simply cannot benefit from a tip pool. Here is what we know for certain: An owner cannot benefit from a mandatory tip pool. A manager or supervisor who is exempt and can hire or fire cannot benefit from a mandatory tip pool. Those who are exempt from the definition of employee under Washington state law may not be part of a mandatory tip pool. Check out the eligibility of other supervisors and managers by connecting with an expert in the Washington Hospitality Association Advisory Network or consulting your attorney.

Q: What happens if the exempt manager is the only person working the bar? Should they simply say the bar isn’t currently accepting tips. Or should the tips be pooled and shared between employees working later in the day? Or can the tips be donated to a charity?
A: Exempt managers can accept tips directly from customers. They can put tips into a tip pool, but they cannot receive from the tip pool. Here is what we know for certain: An owner cannot benefit from a mandatory tip pool. A manager or supervisor who is exempt and can hire or fire cannot benefit from a mandatory tip pool. Those who are exempt from the definition of employee under Washington state law may not be part of a mandatory tip pool. Check out the eligibility of other supervisors and managers by connecting with an expert in the Washington Hospitality Association Advisory Network or consulting your attorney. And yes, tips can be donated to charity as well.