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Tip Credit v. Tip Pooling, Is It Legal?

February 14, 2019 Legal Team

Service industries, especially around the holidays, are often difficult to work. In the United States, tipping for a service is usually customary and expected. As an extra wage, tipping is often the subject of legal debates in many lawsuits. Most recently, the state of California made it unlawful for restaurants to require a mandatory gratuity for large parties.

In service industries where tips are common, the terms “tip pooling” and   “tip credit” get thrown around frequently. What do they mean? And are either of them legal?

Tip credit refers to a system in which servers make less than the minimum wage per hour, but the tips they receive make up for the rest of their hourly wage. For example, in Massachusetts, a server can make $2.63 per hour as a base. As long as his/her tips make up for the rest of the state minimum wage (set at $8 per hour) than the company is compliant. Tip credit systems in California are not lawful. Servers must make the state minimum wage of $9 per hour and their tips are given on top of that earning.

Expense Reimbursement info.

Tip pooling, however, refers to a tipping out system. Servers are required to pay part (sometimes all) of their tips to other employees who participate in the chain of service (i.e. bussers, cooks, etc.)

Tip pooling is legal in California as so long as no member of management participates in the tip pool.

Does it seem like your employer might be violating any tip laws? If so, contact an Aegis attorney soon to preserve your claims.