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Des Moines’ restaurant and bar scene has been abuzz over the past several years for those seeking to develop standout fare and attractive venues. As anyone can tell you, these things are not accomplished without recruiting and retaining a talented workforce. Utilizing the practice of tip-pooling is a well-traveled means of doing just that.
What is tip pooling?
Tip pooling, not to be confused with tip sharing, is a system set in place by the restaurant to collect all tips and split them with all other qualifying employees. By contrast, tip sharing is when the tip recipient handles their own tip and then splits it with whomever they wish.
The distinction matters because tipping naturally creates a property right in that tip, aligning it with the customer’s supposed expectation that their tip is going where it is intended - to the server. Hence, a restaurant exercising control over tips by mandating their employees participate in a pool is regulated quite differently than when the employee takes their own tip and distributes it however they please.
Why set up tip pooling arrangement?
To the collaborative mindset, tip pooling may be a no-brainer. Collaboration for the sake of improving the customer experience has been on the rise these days, and tip pooling is a great way to promote that culture within the ranks. The problem is that this collaborative approach is only available to those who are actually serving and engaging the tipping customers. A broad brush paints these people as “front of the house” employees. with an emphasis on who qualifies for “front of the house” and “employee” status, as contrasted with “back of house” employees (those employees that don’t directly engage with customers). Therein lies the legal rub of tip pooling.
What should I consider when setting up a tip pooling arrangement?
There are both state and federal laws to consider when setting up a tip pooling system. The employee must be made aware of their rights and make an informed decision to join in the arrangement. That means they must receive certain written notices of the laws, and actually sign an agreement with the restaurant at the outset of implementing the system.
Who is eligible for tip pooling?
This has become the difficult question given the “why” and the “how.” The rise of disparity in pay between the front of the house and the back of the house has been well documented in the restaurant scene for several years. Restaurants have also been (or have always been) evolving to the point where the “back of house” is just as important to the customer's experience as the “front of house.” The visibility of executive chefs and their fellow line mates are more popular than ever. And with newer models of collaborative service being utilized nationwide, the distinction between fron and back of house is quickly becoming irrelevant.
The law on tip pooling has yet to enable these trends, however. Understandably, the law’s concerned more with eliminating bad actors from abusing the tip credit system or seizing the property of their employees. As such, the law simply categorizes a tip pool eligible employee as a "tipped employee." The bar is relatively low, but it may be impossible to clear for someone who never leaves the kitchen.
Some restaurants are cleverly finding their way around the law. Many have made headlines for new approaches that involve dropping tips altogether and implementing a service charge or raising prices. Others have introduced a tipping line on the bill for the kitchen. Still others are simply making everyone do everything in the establishment.
Each method certainly has its limitations given varying state laws and regional variance in food cultures and markets. Nevertheless, those seeking to capitalize on the trends should weigh the potential legal risks and harbors accordingly.
*Jason Laughlin, founder and managing member of Laughlin Law Firm, PLC, has well over a decade of experience representing businesses and individuals involved in the restaurant industry.