Tip pools are legal. Most of them are run reasonably. A few of them are illegal in ways that workers don't know to flag — and the recovery, when it happens, is often years of back-wages.
Here's what the federal rules actually say, current as of the 2018 Consolidated Appropriations Act amendment to the Fair Labor Standards Act.
The 2018 change
Before March 2018, the law was simple: tip pools could only include "customarily and regularly tipped" employees. That meant servers, bartenders, bussers, food runners, sometimes hosts. Cooks and dishwashers — back-of-house — were always out.
The 2018 amendment changed it. Now, back-of-house can be in a tip pool — but only if the employer takes no tip credit. Meaning: every tipped employee gets paid the full state minimum wage out of pocket, and tips are entirely on top.
So if your bar pays you the federal tipped minimum of $2.13/hr plus tips, your tip pool legally cannot include cooks. If your bar pays you the full $7.25 (or higher state minimum) and treats tips as pure bonus, it can.
Who can never be in a pool
Three categories, regardless of any other rule:
- Owners — full stop.
- Managers and supervisors — defined by the FLSA's "duties test," not by job title. If they hire, fire, schedule, or direct other workers, they're a manager.
- The business itself — no tip can be used to cover walked tabs, breakage, cash shortages, or any business expense.
The "duties test" is where bars get into trouble. A "bar manager" who still slings drinks and works in the well most nights is in a gray zone. The IRS and DOL generally rule that any time spent directing other workers disqualifies them from the pool for those hours.
Tip credits, explained
Federal law lets employers pay tipped workers as little as $2.13/hr, as long as tips bring them up to the regular minimum ($7.25 federal). The difference — up to $5.12/hr — is the "tip credit."
Eight states ban tip credits entirely: California, Oregon, Washington, Nevada, Alaska, Montana, Minnesota, Hawaii. Bartenders there make full state minimum plus tips. Tip pool rules are looser in those states because there's no credit being taken.
What's required of the bar
If your employer takes a tip credit, the law requires they tell you, in writing or clearly orally, before they take it:
- The cash wage they're paying you
- The tip credit amount
- That all tips are yours except for valid tip-pool contributions
- That the tip credit doesn't apply unless you've been notified
If they didn't notify you, the tip credit is invalid and they owe you back wages for the difference.
What you can do about a bad pool
If you suspect an illegal tip pool — managers taking from it, business expenses coming out of it, or back-of-house included while you're paid sub-minimum — the move is the Department of Labor's Wage and Hour Division. You can file online or call 1-866-487-9243. Investigations are free, you can stay anonymous, and retaliation against you is illegal under Section 215(a)(3) of the FLSA.
Settlements in tip-pool violation cases routinely run into the tens of thousands per affected worker, covering three years of unpaid tips plus liquidated damages.
State-by-state variation
Federal law is the floor. States can be more protective and many are. California prohibits tip pooling with anyone who isn't part of the "chain of service" to the customer. New York has its own notification requirements and stricter pool rules. Alabama and most southern states follow federal law without additions.
If you're looking at a tip-pool arrangement that feels off, check both federal and your state's labor department.