{"id":715,"date":"2025-06-17T18:06:11","date_gmt":"2025-06-17T23:06:11","guid":{"rendered":"https:\/\/marcusboxerman.com\/blog\/?p=715"},"modified":"2025-06-18T10:19:54","modified_gmt":"2025-06-18T15:19:54","slug":"can-back-of-house-employees-participate-in-a-tip-pool","status":"publish","type":"post","link":"https:\/\/marcusboxerman.com\/blog\/can-back-of-house-employees-participate-in-a-tip-pool\/","title":{"rendered":"Can Back-of-House Employees Participate in a Tip Pool?"},"content":{"rendered":"

\"\" Understanding Traditional and Nontraditional Tip Pooling<\/strong><\/p>\n

If you operate a restaurant, you\u2019ve likely wrestled with how to fairly compensate back-of-house staff while complying with wage and hour laws. Tip pooling and service charges can help\u2014but each is governed by strict rules that affect your ability to use the tip credit and avoid liability.<\/p>\n

Traditional Tip Pools: Tip Credit Means \u201cLimited Participation\u201d<\/strong><\/p>\n

Under the Fair Labor Standards Act (FLSA), your business may take a \u201ctip credit,\u201d which generally permits employers to pay front-of-house staff a reduced minimum wage and to make up the difference with tips.<\/p>\n

If you take a tip credit, only employees who customarily and regularly receive tips may be included in a mandatory tip pool. This includes servers, bartenders, bussers, and counter staff\u2014but excludes cooks, dishwashers, and other back-of-house staff. Employers may not retain any portion of pooled tips, nor may tips be distributed to managers or supervisors. A business that includes ineligible employees in a tip pool and takes a tip credit risks legal liability, including being held liable for back pay and penalties.<\/p>\n

Including ineligible employees in a tip pool while taking the tip credit can expose your business to significant liability, including back pay and penalties.<\/p>\n

Nontraditional Tip Pools: No Tip Credit But More Flexibility<\/strong><\/p>\n

If a business pays all employees the full minimum wage and does not take a tip credit, the business may include back-of-house staff and other employees who do not \u201ccustomarily and regularly receive tips\u201d in a mandatory tip pool. This means cooks, dishwashers, and other back-of-house staff can share in tips\u2014but only if:\u00a0 (1) the tips are fully redistributed (typically within the same pay period), (2) payroll records clearly identify which employees received tips and how much, and (3) as with a traditional tip pool, employers, managers, and supervisors cannot keep any portion of pooled tips.<\/p>\n

\u201cService Charges\u201d Are Not \u201cTips\u201d<\/strong><\/p>\n

Some restaurants have moved away from tipping altogether and instead add a \u201cmandatory \u201cservice charge\u201d to guest checks. This is legal, but it\u2019s critical to understand that service charges are not tips and are treated differently under wage and consumer protection laws.<\/p>\n

A \u201ctip\u201d is a voluntary amount left by a customer for service and is considered the property of the employee. A \u201cservice charge,\u201d by contrast (i.e., an automatic 20% added to a bill) is a mandatory fee set by the restaurant and considered business revenue.<\/p>\n

If a service charge is distributed to employees, it must be treated as wages\u2014subject to withholding and payroll taxes. However, since it\u2019s not a tip, service charge distributions are not restricted by tip pooling laws and can be shared with any staff, regardless of their role.<\/p>\n

Mandatory vs Voluntary Service Charges<\/strong><\/p>\n

Restaurant owners should distinguish between mandatory and voluntary service charges\u2014both require clear disclosures and are not tips.<\/p>\n

A mandatory service charge<\/strong> is added to the bill automatically and must be clearly disclosed to customers at the beginning of the ordering process, including on printed or digital menus. Under guidance from the Chicago Department of Business Affairs and Consumer Protection (BACP), the restaurant must also explain how the fee is used, such as to support staff wages or cover operational costs. Importantly, a mandatory service charge cannot be labeled as a \u201ctip\u201d or \u201cgratuity\u201d; doing so may mislead customers and violate consumer protection laws.<\/p>\n

A voluntary service charge<\/strong>\u2014such as a 3% \u201cemployee benefits\u201d or \u201chealth insurance\u201d fee that customers may ask to remove\u2014must also be clearly disclosed. Even though customers can opt out, these charges are still revenue to the business and must not be characterized as tips..<\/p>\n

What This Means for Operators<\/strong><\/p>\n

Here\u2019s the bottom line:<\/p>\n