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Attorney Gives a Few Tips on Tip-Pooling


An electronic tip jar is much preferred over this old-fashioned kind, says Joel O’Malley of Nilan Johnson Lewis, an expert on the subject.

As the tipping issue at restaurants rages on between front of the house employees and back, Joel O’Malley of Nilan Johnson Lewis in Minneapolis offers a quick refresher course on a complicated topic that’s been tripping up the likes of Starbucks, Outback Steakhouse and Pinstripes in Minnesota with lawsuits of late.

Federal law was changed last spring, he notes, “to being quite employer-friendly, in that it allowed tips to be shared with back of house employees as long as they were being paid the federal minimum wage. If they aren’t being paid the minimum wage they can’t pool it.”

But, “some states are more particular,” he notes, and in those states employers have to follow state laws: California, New York and Minnesota are the prime examples. “They each are different in their own unique ways, which means that even if you wanted to take an approach, if you’ve got a national franchise, that would comply with the most restrictive state law, that doesn’t work because they are restrictive in different ways.”

For example, California and New York both forbid tips to be shared with back of the house employees, whereas federal law allows it. California and federal law also differ on the definition of supervisor, and who might be able to share in the pool.

O’Malley offered some top do’s and don’ts, but know the issue is enormously complicated so consult your attorney and stay up to date.

  1. On tip jars: Move to an electronic system, he advises, so customers have a choice as to who they want to tip and employers know exactly who was working at that time. “So maybe you have a choice that says to the customer, ‘I would like to tip the entire staff that is currently working, or I would like to tip the person who served me.’ Because it’s electronic, and it’s that customer’s choice, and then you know exactly who was working.”
  2. “Don’t even try” to dress up a mandatory tip pool to make it look as though it’s voluntary, he says, something many owners do as they try to work around minimum wage increases and other cost pressures. “Restaurant owners tend to be entrepreneurial, A-type, and have the answers and they’re creative. Why don’t we try this?” they might say. “Heck no, please stop,” because penalties can be stiff.
  3. Pay attention to frequent state changes about whether tip credits are allowed, whether credit card service fees can be deducted from tips, and the like. “There are a lot of issues that revolve around tips that if you don't have the laws in mind state by state, you’re going to run afoul. I’ve seen it happen,” O’Malley says.
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The latest news, opinions and commentary on what's happening in the franchise arena that could affect your business.

Laura MichaelsLaura Michaels is editor of Franchise Times. She can be reached at 612.767.3210, or send story ideas to lmichaels@franchisetimes.com.
Beth EwenBeth Ewen is senior editor of Franchise Times. She can be reached at 612.767.3212, or send story ideas to bewen@franchisetimes.com.
Nicholas UptonNicholas Upton is restaurants editor at Franchise Times. He can be reached at 612.767.3226, or send story ideas to nupton@franchisetimes.com.
Mary Jo LarsonMary Jo Larson is the publisher of Franchise Times Magazine and the Restaurant Finance Monitor.  You can find her on Twitter at




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