Tips, Tip Pooling, and Tip Credits

Restaurant wait-staff in the United States make a significant part of their incomes in tips left by satisfied or habit-driven or social-norm-conscious patrons (but this isn't a post about the large behavioral literature on restaurant tipping, e.g. here). A consequence of this is that restaurants and certain other employers can receive "tip credits" that release them from the obligation to pay the minimum wage, since their employees will be having part of their wage paid by their customers.

There's a body of law about what employers can and cannot do with tips (e.g. require them to be pooled, shared with non wait-staff, etc.), and about what constitutes a tip (e.g. not all "service charges" go to the server): see e.g. NoLo.com's  Tips, Tip Pooling, and Tip Credits: What Service Employees Need to Know

There are presently a number of lawsuits going through the courts about this, and some new legislation, discussed in an op-ed in the NY Times by Tim and Nina Zagat of Zagat's fame: Adding Fairness to the Tip

With the new year have come some new regulations in NY: New Rules Impose Systems for Sharing of Tips
"The new regulations apply to workers in restaurants and hotels and cover a number of issues, including who should pay for laundering “wash-and-wear” uniforms, like special T-shirts. The rules also raise the minimum wage for tipped employees, to $5 from $4.65 an hour for food service workers and to $5.65 from $4.90 an hour for service workers, a category that includes coat check workers in a restaurant or porters in hotels. (There is a separate minimum for workers at resort hotels.)


"The new rules also define the job categories that are eligible for shares in tips from the dining room: food service workers only, including waiters, bartenders and bussers, as well as sommeliers and hosts, provided they are not managers.

"The new rules allow restaurants to dictate both the system and the percentage allocated to each job category. Gratuities can be combined in a pool, to be divided by all the staff members who have helped a team effort. Or, individual servers can collect their own tips and give portions, or shares, to members of the team.

"The Labor Department will require that employers keep records of tip pools and shares; the records could be examined during investigations undertaken by the department on its own or in response to complaints.
...
"Higher-end, full-service restaurants tend to favor the pooling of tips, because it breeds less squabbling over stations and shift assignments, provides an incentive for teamwork and encourages the servers to police their own performance.


"The new regulations generally limit the pool to service workers in the dining room who interact with customers directly — like waiters — or indirectly, like servers who ferry plates from the kitchen to a station where another server picks them up and delivers them to the table. But bartenders, who prepare beverages for the dining room in a role analogous to that of a cook, can also share in the tip pool, even though kitchen staff members cannot.

“A lot of this arises from custom and tradition,” Ms. Lindholm said. “If you’re looking for perfect logic in this, it isn’t there.”