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Tip Out Policies Regarding A Salaried Manager

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At a restaurant, employees are required to tip out the manager, giving him 10% of the gross tips from a pool. I have never in 29 years in HR in the hospitality industry heard of this. The manager already receives a salary, full benefits, ski passses, and free food and beverages. WHY should servers have to supplement his income out of their tips?!?!? Is this practice even legal?

This policy may be illegal. The answer depends on  a number of factors, including which state the workers are in, how the workers are paid and if the manager is performing another type of work as well.

The relevant federal law is the Fair Labor Standards Act of 1938, which is the federal minimum wage law. The policies laid out by the U.S. Department of Labor require that employees are entitled to keep all tips received. Here’s a link to a federal publication on the subject.

Under federal law, employers may pay less than the minimum wage to workers who regularly receive more than $30 per month in tips. The federal minimum wage for tipped workers is $2.13 per hour. Some states have higher minimum wages for tipped workers.

Regardless of the hourly rate that the employee is being paid, he or she is entitled to keep all tips, unless there is a valid “tip pooling” arrangement in place. A valid tip pooling arrangement (according to the U.S. Department of Labor, Wage and Hour Division) occurs when tips are shared among workers who normally receive tips, such as servers, bus persons, bellhops and service bartenders. Managers do not normally receive tips.

It is not unusual for servers to “tip out” or share a pre-set percentage of tips with bus persons and/or service bartenders. In a typical arrangement, a bus person might receive 10% of the servers daily tips, while a service bartender might receive 10% to 25% percent. Normally the percentage to be “tipped out” is set in advance, by convention, at each establishment. (A server who “forgets” to tip out a bus person may find that her tables are not cleared promptly. One who neglects to tip out the service bartender might find that he has to wait a long time for drinks, which reduces his tips.)

In some restaurants, particularly during the “off” season, the servers all share tips equally. This is a voluntary arrangement that minimizes the differences between daily income based on assigned stations.

A tip pooling arrangement where the tips were shared with a salaried manager would not normally be considered a valid one. The exception might be if the manager was fulfilling the role of a service bartender, or perhaps a bus person. In this situation, 90% of salaried managers would refuse the customary share of tips. It’s not clear if a manager who accepted a share of  the tips would actually be in violation of federal law, under these circumstances.

All of these regulations apply to tips, not to compulsory “service charges” that are routinely or automatically added to the bill in some establishments. Service charges for large groups or banquets, as well as those in restaurants that routinely add them, are not considered “tips.”  Under federal law, these service charges are part of the employer’s gross revenue, and may be retained by the employer, or divided in any way that the employer sees fit. However, all workers in such an arrangement must be paid at least the minimum wage.

A number of states also have laws that address tip pooling, usually as part of a state minimum wage or overtime law. Please post another question mentioning your state, for a more specific answer.