US federal tip pooling rules (FLSA): what employers can and can’t do
Federal law sets the floor for every state. It is short, and most violations come from three habits: letting a manager into the pool, adding the kitchen while taking a tip credit, and not keeping records. Here is the whole framework, with the official sources linked.
The five rules in one table
| Rule | Federal position (FLSA §3(m) and 29 CFR Part 531) |
|---|---|
| Who owns tips | The employee. An employer may not keep any portion of employees’ tips for any purpose, whether or not it takes a tip credit. The only permitted use is a valid tip pool. |
| Managers and supervisors | May never receive tips from a pool or tip-out. They may keep tips a customer gives them directly for service they directly and solely provided, and they may contribute their own tips into a pool. |
| Tip credit | Employers may pay tipped employees a cash wage as low as $2.13/hour and count up to $5.12/hour in tips toward the $7.25 federal minimum wage, if they give the required notice and the employee actually receives enough tips. Many states set a higher cash wage or ban the credit. |
| Who may be in a pool | If a tip credit is taken: only employees who customarily and regularly receive tips (servers, bartenders, bussers, barbacks, runners, hosts). If no tip credit is taken from anyone in the pool: the pool may also include back-of-house staff such as cooks and dishwashers. Managers and supervisors are excluded in both cases. |
| Records and timing | Employers operating a pool must keep records of each employee’s tips received and the amounts contributed to and distributed from the pool, and must pay out pooled tips no later than the regular payday for the pay period in which they were received. |
Who counts as a “manager or supervisor”
The regulation borrows the duties test of the executive exemption: someone whose primary duty is managing the business or a department, who customarily directs the work of two or more full-time employees, and who has authority to hire or fire (or whose recommendations carry particular weight). Title is irrelevant. A “shift lead” who schedules, disciplines and interviews is a supervisor; a “captain” who runs a section but has no authority over others is not. Owners with a 20% or larger bona fide equity interest who are actively engaged in management are also excluded.
A manager who serves tables on a busy night can keep what a guest hands them for that table — not a share of what the servers earned.
The tip credit, properly
To take the credit an employer must tell each tipped employee, in advance, the cash wage it will pay, the amount it will claim as a tip credit (not more than tips actually received), that all tips stay with the employee except for a valid pool, and that the credit will not apply unless the employee has been told these things. A “tipped employee” is one who customarily and regularly receives more than $30 a month in tips. If the cash wage plus tips does not reach the minimum wage for the workweek, the employer must make up the difference. Overtime is calculated on the full minimum wage, not the $2.13 cash wage.
Seven states — Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington — do not allow a tip credit at all, which has a side effect: in those states a pool may always include back-of-house staff under federal law (state law may still restrict it). See states with no tip credit.
Credit card processing fees
Federal law allows an employer to deduct from a credit card tip the proportional share of the card processing fee (a 3% fee on a $20 tip means the employee is owed $19.40), as long as the deduction does not drop the employee below minimum wage and the tip is paid by the next regular payday. Several states forbid this deduction outright — California is the clearest example — so follow the stricter rule where it applies.
What happened to the 80/20 rule
From 2021 the Department of Labor’s rule limited the tip credit when a tipped employee spent more than 20% of the workweek, or more than 30 continuous minutes, on “directly supporting” work such as rolling silverware. In August 2024 the Fifth Circuit vacated that rule nationwide, and in December 2024 the Department issued a final rule removing it from the regulations and restoring the earlier “dual jobs” text. In 2026 the federal position is therefore: if an employee holds two genuinely different jobs for the same employer (server and maintenance worker), the tip credit applies only to the tipped job; there is no federal percentage test for side work within a tipped job. New York still has its own two-hour/20% rule and other states have similar provisions, so the state guides matter here.
Penalties
An employer that keeps tips, or lets a manager take them, owes the tips back plus an equal amount in liquidated damages, and can be assessed a civil money penalty per violation (the amount is adjusted for inflation each year; the Department publishes the current figure). Employees can sue individually or collectively, and the two-year limitation period becomes three for wilful violations.
Service charges are not tips
A mandatory charge the house adds to the bill (an 18% “service charge” on parties of eight, a banquet fee) is the employer’s revenue under federal law, not a tip, even if it is passed to staff. It may be used to meet the minimum wage obligation and is not subject to the pool rules — but it also cannot be called a tip to customers, and several states and cities regulate how it is disclosed. If you pass service charges to staff, record them separately from tips.
Federal income tax on tips (2025–2028)
The 2025 federal tax law created a deduction of up to $25,000 a year for “qualified tips” for tax years 2025 through 2028, phasing out above $150,000 of modified adjusted gross income ($300,000 for joint filers). Shared and pooled tips qualify, as long as they are voluntary customer tips in an occupation on the IRS list. The deduction reduces federal income tax only; Social Security and Medicare taxes still apply, employees still report all tips, and employers still include tips on Form W-2. It does not change any of the pooling rules above — but it does make an accurate per-person tip record more valuable to your staff.
Practical checklist for a compliant pool: written policy naming the roles and the split method; no manager or supervisor on the distribution list; kitchen roles only if nobody in the pool is paid under a tip credit; card-fee treatment stated and lawful in your state; every shift recorded with contributions, distributions and hours; payout by the next regular payday. The free SplitTips calculator prints a shift sheet that captures all of this.
FAQ
Can an employer require employees to join a tip pool?
Yes. Federal law allows mandatory tip pools among eligible employees. The employer may not keep any of the money and must tell tip-credit employees about the pool in advance.
Can cooks and dishwashers be in a tip pool?
Under federal law, only if the employer pays every employee in the pool the full minimum wage without a tip credit. If any pooled employee is paid $2.13 plus tips, the pool is limited to customarily tipped front-of-house roles.
Can a manager who waits tables keep tips?
Only tips a customer gives them directly for service they alone provided. They may never receive a share of other employees’ tips from a pool or tip-out, regardless of hours worked.
Is the 80/20 rule still in effect in 2026?
Not at the federal level. The 2021 rule was vacated by a court in 2024 and removed from the regulations in December 2024. New York and some other states have their own side-work limits that still apply.
Does the employer have to keep records of the tip pool?
Yes. Employers that operate a pool must record each employee’s tips and the amounts contributed to and received from the pool. States add their own retention periods (New York: six years).
Official sources
- US DOL Wage and Hour Division, Fact Sheet #15: Tipped Employees Under the FLSA
- US DOL, Fact Sheet #15B: Managers and Supervisors Under the FLSA and Tips
- US DOL, Fact Sheet #15A: Tipped Employees and Dual Jobs
- US DOL, Minimum Wages for Tipped Employees (state table)
- US DOL, Fact Sheet #2: Restaurants and Fast Food Establishments Under the FLSA
- IRS, What the “No Tax on Tips” deduction means for you
Split tonight’s tips in 30 seconds
The free SplitTips calculator splits a pool by hours, by role points or evenly, takes the kitchen tip-out off the top and prints a settlement sheet. No account needed.
Related guides
- California tip pooling law: what operators need to know
- New York tip pooling law: Labor Law 196-d and the Hospitality Wage Order
- Texas tip pooling law: the federal rules, enforced two ways
- Florida tip pooling law: the $15 minimum wage, the $3.02 tip credit and the federal pool rules
- States with no tip credit: what changes for your tip pool
This guide is general information for operators, not legal, tax or payroll advice. Rates and rules change; the official sources above are the authority. SplitTips applies the rule you set and does not decide what is lawful in your jurisdiction.