When is a tip-pooling arrangement illegal?

Many restaurants use a tip-pooling arrangement or scheme in which all the servers, waiters, waitresses, bartenders, bussers, hosts, hostesses, etc. put together or pool their tips and then divide them either equally or in some other proportion.  These have to be done in a particular way or the tip-pool is illegal. 

A tip-pooling arrangement is legal where the tip-pooling arrangment includes only employees that are customarily tipped, i.e., waitressess, waiters, bartenders, servers, bussers, etc.  If the tip-pooling includes employees that are not customarily tipped such as cooks and dishwashers, the tip-pool is illegal.

What difference does it make if the tip pool is illegal? The difference is that, if an illegal tip pool arrangement is used, the employer cannot apply the "tip credit" to the employees in question. The "tip credit" allows an employer to actually an employee subject to the tip credit only $2.13 per hour the idea being that tips make up the difference between $2.13 and the minimum wage, which must be paid all employees. So a server, for instance, that has participated in an illegal tip pool should not have had the "tip credit" applied to him or her and has a claim for unpaid wages representing the difference between the amount of wages paid, which in Kentucky is probably $2.13 per hour, and the minimum wage, which in Kentucky is at present $7.25 per hour.

If you have questions regarding the tip credit and how it is applied to you, contact Lexington, Kentucky wages and overtime lawyer Robert Abell at 859-254-7076.