An arrangement where tipped employees share gratuities with coworkers. Following the 2018 FLSA amendment, employers who do not take the tip credit may include back-of-house employees such as cooks and dishwashers in the pool.
Why Tip Pool matters for employers
Valid tip pools among customarily tipped employees (servers, bartenders, bussers, food runners) have long been permitted under the FLSA. The 2018 Consolidated Appropriations Act amended the FLSA to allow employers who pay the full minimum wage (and do not take a tip credit) to include back-of-house employees such as cooks and dishwashers in the tip pool. Employers who take the tip credit may still only include front-of-house tipped employees in the pool.
Mandatory tip pools that include managers or supervisors who have authority to hire, fire, or direct employees are prohibited under any circumstance. Employers who violate tip pool rules are liable for the full amount of tips that should have been distributed to employees, plus an equal amount in liquidated damages.
How BEG handles Tip Pool for clients
BEG Managed Payroll handles Tip Pool as part of a fully managed payroll service at $25-$45 per employee per month. Clients do not need to track compliance rules, filing deadlines, or calculation methods related to Tip Pool on their own. Everything is included. Learn about BEG Managed Payroll.
Frequently asked questions
Do employers have to manage Tip Pool themselves?
No. A managed payroll provider handles Tip Pool as part of full-service payroll. BEG manages this for clients at $25-$45 PEPM with no system migration required.
What happens if Tip Pool is handled incorrectly?
Errors related to Tip Pool can trigger IRS penalties, state agency assessments, or employee disputes. Catching and correcting errors before filing is far less costly than after-the-fact corrections.
How does BEG handle Tip Pool for managed payroll clients?
BEG tracks, calculates, and remits everything related to Tip Pool as part of fully managed payroll. Clients do not need to monitor compliance -- that is included in the service at $25-$45 PEPM.
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About the author
Anthony Moretti is VP of Sales at Business Executive Group, where he builds BEG's managed payroll and HR service verticals for employers across Dallas-Fort Worth and nationwide. He writes the BEG Payroll Glossary to give employers plain-English answers on payroll and compliance.
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