Generally, tip pooling is legal in California. While the California Labor Code Sec. 351 states that employers cannot “collect, take, or receive” any part of a gratuity left by a customer, an employer is allowed to mandate “tip pooling” or “tip sharing” so long as the policy is “fair and reasonable.” Leighton v. Old Heidelberg, Ltd., 219 Cal. App. 3d 1062 (1990). The court relied upon the “industry practice” that 15% of the gratuity is tipped out to the busboy and 5% to the bartender, which was “a house rule and is with nearly all Restaurants.”
Employees who are in the “chain of service” may partake in a mandatory tip pool. Etheridge v. Reins International California, Inc., 172 Cal. App. 4th 908 (2009). Who cannot share – neither an “employer” nor “agent of the employer” (a supervisor with the authority to hire/fire, or direct/control employees). The California Appeals Court found an exception to this in a case involving Starbucks where a shift supervisor who spent 90% of their time doing barista work (and the shop had a general tip jar), could share in the tip pool. Chau v. Starbucks Corp., 174 Cal. App. 4th 688 (2009). Any inclusion of a supervisor should be reviewed very carefully because this was a very fact specific case.
There must be a reasonable relationship between tip pooling arrangements. Here are examples of acceptable tip pooling arraignments:
A policy in which 80 percent of tips were allocated to waitstaff, 15 percent to bus people, and 5 percent to bartenders.
Under Federal regulations, the Department of Labor has stated that a policy that requires servers to share 15 percent of their tips with other employees is presumptively reasonable.
A policy in which a server contributes 15 percent to a tip pool, and other employees in the chain of service receive a portion of these tips based on the number of hours they worked.
These examples show that California and Federal law allows both “tip pooling” – pool together some percentage or all of tips and redistribute in an equitable way to other staff in the front of house and/or back of the house to encourage everyone to do their best work; and “tip sharing” (or “tipping out”) – where a percentage of the server’s gratuities goes to other staff members and is distributed equitably.
Some of the guidance for implementing a tip pool arrangement recommended being very transparent with the participants about what you are implementing and why (i.e., to recognize the role the other staff like bussers, runners, dishwashers, etc. play in the smooth operation of the service or sometimes restaurants will also want to even out things between servers because a certain section may have a really bad night based on the customers). It can be tricky if the servers distrust the process. Here are more examples of approaches:
Basic tip pool. All tips are pooled, then evenly distributed among participating employees. This happens more frequently with quick service restaurants and fast casual restaurants — i.e., places that might have a tip jar.
Set percentages. Generally, for percent-based tip-outs, servers keep a majority percentage of their tips, then contribute the remainder to a pool. An employee’s role or position then determines the amount they receive from the pool. Example: Servers keep 70% of their tips and contribute 30% to a pool. From that pool, Bartenders might get 50% of the pool, hostesses get 20%, bussers get 10%, dishwashers get 10%.
Points system. Employees are assigned points based on their role, and those points determine the percentage of the tip pool they receive. Example: Servers get 15 points, hostesses get 5 points, and bussers get 2 points. You would want to determine the total points for each shift. 4 servers = 60 points. 2 hostesses = 10 points, 1 busser = 2 points. Total points = 72. If total tips earned in one shift is $792, the value of a point is (792 / 72), or $11. Each server would get $165 (15 x $11), each hostess would get $55, and each busser would get $22.
Hours worked. Tip pool amount is divided by total hours worked. That number is then multiplied by the hours each employee worked to determine what they’re owed. Example: 4 servers worked a total of 25 hours. The tip pool totals $450. For every hour worked, servers earn $18. *Since your goal is to increase the pay of other staff, you would have to set a % designated for those staff deducted 1st, then divide the remaining amount to servers evenly.
Server A worked 4 hours, gets $72
Server B worked 7 hours, gets $126
Server C worked 8 hours, gets $144
Server D worked 6 hours, gets $108
A Few Other Important Points:
Mandatory service charges are not a tip; if they are paid out to employees, they are considered wages. They also have implications for calculating overtime and minimum wage.
In California, credit card processing fees must be paid by the employer and cannot be deducted from tips paid out.
Keep excellent records in case an issue were to arise to back up all pooling and redistribution.