Tip Pooling Laws by State: What Restaurants Must Know in 2025

Tipping. It might just be the most complicated “thank you” in the world.

It’s such a big deal in hospitality that even the IRS is keen for you to keep detailed bookkeeping about how many tips your team gets. There are even laws that let businesses pay their staff less than the applicable minimum wage because tips are expected to make up the difference.

However, not everyone who makes a great guest experience actually gets to see the tips roll in. The chef who whipped up the perfect risotto? The dishwasher who saved the night when the plates ran out? They're all key parts of making a restaurant business run well, and, oftentimes, they're just not considered at all. That’s where tip pooling comes in, a system that helps spread the love (and the cash).

We'll be giving you the 411 on tip pooling today, including how it works in your state, why it matters, and what employers (that's you) can and cannot do when setting up tip pooling arrangements.

What is tip pooling?

Tip pooling is when all the tips collected by employees are combined into one shared pool and then divided up among the team based on a set formula. It’s a way to make sure everyone who helps deliver great service (not just those awesome front-of-house staff who get face time with customers) gets rewarded fairly.

In a restaurant, for instance, you've got servers, bartenders, and bussers who might all contribute their tips into one mandatory tip pool. At the end of the pay period, the employer divides the combined amount based on hours worked or another agreed method. Some tip pooling arrangements also include kitchen staff or service bartenders, depending on what’s allowed under federal law and state minimum wage laws. But we'll get onto the laws in more detail a little later.

The reason behind tip pooling is actually pretty simple: to create a fairer system that rewards teamwork. Everyone who contributes benefits.

Tip pooling vs tip sharing

Tip pooling vs. tipping out (or tip sharing) sound really similar, but they’re actually pretty different.

• Tip pooling is the 'all-in' approach. Everyone who regularly receives tips throws their tips into one big pool, and then the employer or business divides the combined amount among eligible staff.

• Tipping out, on the other hand, is more old-school. Here, employees keep their tips earned, except for maybe a small portion, which goes to support staff.

Tip pooling methods

Now sharing is caring, but there's more than one fair way to share when it comes to tip pooling. How you split the pooled tips really depends on your team, the roles of your tipped employees, and how your business runs - and yes, it also needs to comply with labor standards, minimum wage rules, and tip pooling laws. Here are the most common ways to do it:

• Shift-based pooling: Tips earned during a specific shift get pooled and shared only among the employees who worked that shift. It’s simple and makes sure only the staff who were on the clock get a slice of that shift’s tips.

• Hours-worked pooling: Tips are divided based on how many hours each employee worked. Put simply, if you work longer, you get a bigger share. Fair, right?

• Job- or role-based pooling: This method splits tips according to the role or level of customer interaction. Front-of-house staff usually get a higher percentage than kitchen staff or other back-of-house roles. It’s a way to reward employees based on the work they actually do for customers.

• Tip pool point system: Here, each role is assigned points depending on responsibility or customer interaction. Customer-facing staff rack up more points, while back-of-house employees get fewer. At the end of the pay period, tips are divided according to the points each employee earned.

How to calculate each tip pooling method:

Before you pick a tip pooling method for your business, it helps to see how the math actually works. Here are some simple ways to divide tips fairly:

Equal split by shift:

If everyone works the same hours (which, let's be honest, is pretty rare, but not unheard of), it’s easy. Just divide the total tips equally. For example, five servers finish a dinner shift with $500 in pooled tips. Each worked the same hours, so: $500 ÷ 5 servers = $100 each

Split by hours worked:

When people work different shift lengths, divide tips based on hours worked. Say three servers bring in $220 in tips: two worked eight hours, one worked six hours, for a total of 22 hours. First, figure out the tip rate per hour: $220 ÷ 22 hours = $10 per hour. Then multiply by each server’s hours:

• 8 hours × $10 = $80

• 8 hours × $10 = $80

• 6 hours × $10 = $60

Points system for mixed roles:

Give points based on responsibility or customer interaction. For example:

• 3 servers × 40 points each = 120 points

• 2 bartenders × 20 points each = 40 points

• 2 bussers × 5 points each = 10 points

Total points = 170

Next, figure out what each point is worth: $340 ÷ 170 points = $2 per point

Then multiply by points per role:

• Servers: 40 × $2 = $80 each

• Bartenders: 20 × $2 = $40 each

• Bussers: 5 × $2 = $10 each

The main thing is picking the tip pooling method that fits your team and keeps it fair for everyone.

Federal tip pooling laws under the FLSA

Under federal law, a tipped employee is anyone who regularly receives tips of more than $30 a month.

If your business takes a tip credit, you can pay a direct wage as low as $2.13 per hour. Then, the tips they receive make up the rest, up to the federal minimum wage of $7.25 per hour.

You must ensure that the combined amount of tips and cash wages received meets or exceeds the minimum wage requirement. If it doesn’t, the employer pays the difference.

You can set up a mandatory tip pool, but only for employees who regularly receive tips. Managers, supervisors, and owners cannot take a share. They can only keep tips earned from direct table service they personally provide.

If your employees are paid the full minimum wage, you can expand the tip pool to include kitchen staff or other non-tipped roles.

Every valid tip pooling arrangement must be fair, documented, and distributed at the regular payday.

A few more rules:

• Service charges aren’t tips, but they count toward wages and overtime pay.

• If tips come via credit card, you can deduct the exact fee the credit card company charges.

• Cash register shortages or other deductions cannot reduce wages below minimum.

• Keep good records of hours worked, tips earned, and employee’s wages to stay on the right side of labor standards.

Follow FLSA tip pooling rules, make sure your tipped employees receive at least the applicable minimum wage, and run your tip pooling arrangements fairly. Do this, and your team stays happy and your business stays compliant.

State-by-State tip pooling laws and variations

Not all states play by the same rules.

Tip pooling laws by state can be stricter than federal law, and many states have their own requirements for who can participate, how tips are distributed, and whether a tip credit is allowed.

The table below highlights some of the biggest states with notable rules, including California tip pooling, New York tip pooling laws, and Florida.

Don't see your state on here and still want to know what you, as an employer, cannot do? Check out the full table of states on the US Department of Labor website.

How to set up a legal tip pooling system

If you want to set up a tip pool, there are a few things to keep in mind:

1. Set clear rules: Decide how your tip pool will work. Which employee's tips go in the pool? How will they be split? Who’s eligible?

2. Talk to your team: Explain the plan to your tipped employees. Let them know why you’re doing tip pooling, how it works, and give them a chance to ask questions.

3. Collect the right info: You’ll need some basic data to run a tip pool. Including,

• Sales and tips received

• Employee info like job titles, hourly wages, tip eligibility (including back-of-house staff if they’re in the pool)

• Hours worked, tracked with timecards, timesheets, or your scheduling system

Tools like restaurant POS systems integrated with payroll software make this easier.

4. Automate payouts: Manually calculating tip splits is messy and prone to mistakes. Automating the process makes it faster, more accurate, and transparent. POS software and Epos Now Payments can pull your sales, hours, and tips together and handle payouts automatically.

Final Thoughts

When done right, tip pooling can actually help your team work better together.

Paying tipped workers on time and splitting employees' tips fairly builds trust and teamwork.

No matter which method you choose, make sure your calculations are consistent and fair among employees in all roles.

Remember, a good POS system can track sales, tips, and hours automatically, making tip pooling arrangements easier and more accurate. Plus, you can integrate popular bookkeeping apps like QuickBooks or Sage to keep your records tight and ensure you're following state law.

If you need guidance or support, speak to our helpful team today. We can help make tip pooling simple.