Balancing company revenues and employee compensation is critical to the success of any hospitality business. As profit margins continue to tighten, restaurant and bar owners may need to revisit their tipping practices. Tip pooling and tip sharing are common practices that can benefit employees (and hence their employers). The legal requirements around these tipping topics can depend on both state and federal law. In New York, the state requirements are more restrictive than federal regulations would otherwise allow.
New York applies the following concepts to requirements related to these tipping issues.
Tip Pooling is the practice by which the tip earnings of directly tipped employees are intermingled in a common pool and then redistributed among directly and indirectly tipped employees.
Tip Sharing refers to a type of tip pool structure in which directly tipped employees keep a certain percentage of their tips, then tip out other indirectly tipped employees with the remaining percentage.
Directly Tipped Employees receive tips from patrons directly without any intermediary between the customer and the employee. Examples of directly tipped employees include servers and bartenders.
Indirectly Tipped Employees support service and are eligible to receive tips from a tip pool, such as bussers, barbacks, and hosts.
Back-of-house employees, such as cooks, dishwashers, porters, and other employees, whose primary job function does not involve direct interaction...
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