Q: I run a small restaurant, and I want to make sure that everyone is rewarded equally for their hard work. Can I ask my tipped employees to share part of their tips with other employees?
A: Yes, but you need to follow some important guidelines and be aware of the limitations. The practice of requiring employees to share their tips in previously agreed percentages is commonly known as a mandatory “tip pool.” In California, employers can require employees to participate in a tip pool if the pool meets certain conditions. These conditions are:
- Tipped employees should generally not be asked to contribute more than 15% of their tips to the tip pool;
- Owners and supervisors should not be allowed to participate in any portion of the tip pool;
- Tip pool participants should be limited to those employees who contribute in the “chain of service”; and
- The money from the tip pool must be distributed to the eligible employees in the “chain of service” based on the number of hours they worked.
Sometimes, the most difficult requirement to navigate is the requirement to limit the tip pool participants to employees in the “chain of service.” This is because employers often want to allow back of the house employees such as chefs, cooks, and dishwashers to participate in the tip pool. Historically, the Labor Commissioner’s position is that only front of the house employees who provide direct table service can participate in a tip pool. In a 2005 Opinion Letter, the Labor Commissioner indicated that in the restaurant industry employees in the “chain of service” include “waitpersons, buspersons, bartenders, hostesses, wine stewards and ‘front room’ chefs.” Though the Labor Commissioner excluded back of the house employees from this list, it acknowledged that industry standards are likely to evolve over time.
At least one court has identified that standards have evolved. In 2009, a California Court of Appeal disregarded the 2005 Opinion Letter and expanded the types of employees who may participate in a tip pool. Specifically, the court held that back of the house kitchen staff may legally participate in a tip pool because they are part of the “chain of service.” The court reasoned that a customer’s experience is not limited to employees the customer can see and that the amount a customer tips may depend on the customer’s satisfaction with the food. This decision supports an employer’s ability to include kitchen staff in a valid tip pooling policy, especially when chefs or cooks are visible or interact with customers.
Employers should be aware that the Labor Commissioner has not yet revised its general guidance that only front of the house employees who provide direct table service can participate in a tip pool. Given this apparent conflict in authority, restaurant employers who are risk averse should continue to limit tip pools to front of the house staff only.
The central theme in the guidelines for tip pools is that the pool be reasonable in terms of its funding and participation. This is a case-by-case analysis based on the division of duties at each restaurant and should be analyzed carefully. Though it is not a requirement, it is recommended that employers with tip pooling arrangements create a written tip pooling policy that is signed by each participant.