Changes in Wisconsin Tip-Pooling Law: What you need to know if your employer practices tip-pooling

The practice of tip-pooling has existed for decades in the Wisconsin service industry. In a nutshell, tip-pooling allows other employees who would not otherwise receive tips (ex. table bussers) to share in servers’ tips. For example, a restaurant might have an arrangement where all servers contribute 10% of their tips to common pool of funds; these pooled funds might be split between all the bussers, or all bussers and bartenders.

For years, restaurant tip-pooling was guided by the limitation that those sharing pooled tips must be employees who “customarily and regularly” receive tips. In other words, employees such as cooks and dishwashers (“Back-of-House” employees) could not participate. This is still true for employers who take a “tip credit” (see below) and have a policy of tip-pooling. However, a recent change in Wisconsin tip pooling law removed the tip-pool participation limitation for employers who do not take a tip credit. To understand what this means, a brief explanation of “tip credit” is helpful.

Understanding Tip Credit

Under Wisconsin and federal law, a “tip credit” is the amount an employer is allowed to apply toward its minimum wage obligation. In other words, employers can use the amount of the tips actually received by the employee to offset total wages due to the employee under the minimum wage law.

The required minimum cash wage from the employer is $2.33 per hour under Wisconsin law. The current minimum wage is $7.25 per hour. Thus, the most tip credit an employer can legally take is $4.92 per hour ($7.25 minus $2.33), and, again, the tip credit can only be based on tips actually received by the employee. If the employee’s actual tips plus the minimum payment ($2.33) do not reach minimum wage, the employer has to make up the difference.

The recent legal change did not affect the scope of tip pooling for employers who take a tip credit. For further discussion of tip credit and tip-pooling where an employer takes a tip credit, see our blog post by Attorney William Parsons.

Legal Changes for Wisconsin Employers who do NOT take a tip credit

Put simply, an employer does not take a tip credit if employees’ regular hourly wage meets or exceeds minimum wage—that is, the employee is paid minimum wage ($7.25) even without tips. While most Wisconsin service industry employers do not pay cash wages over the federal minimum wage, some do, and recent legal changes have important implications for those employers who pay wages at or above the minimum legal rate and also practice tip-pooling.

An amendment passed in March 2018 suggests (but does not explicitly state) that if an employer does not take a tip credit, a mandatory tip pool may include employees who are not “customarily and regularly” tipped. In other words, back-of-house employees previously excluded may now be eligible to participate.

Importantly, even with this tip pooling expansion, a valid tip pool still may not include managers or supervisors. This is because such employees are considered to be “the employer,” and an employer cannot keep tips except for the purpose of distributing them across a valid tip pool. For this reason, it is likely that an employee who has dual job duties, i.e. some management duties and some non-management duties, would still not be allowed to participate in the tip pool. The law provides a test for determining whether an employee’s duties are considered “managerial.”

In addition, the amendment creates a private right of action to recover all tips unlawfully kept by an employer, regardless of whether that employer takes a tip credit. Damages include any tip credit taken by the employer (if applicable) and all tips withheld, plus an additional amount equal to that as liquidated damages. In other words, if liable, the employer must pay the employee twice the amount owed.

Summary: Is my Employer’s tip-pooling policy valid?

The answer depends on whether your employer takes tip credit.
If an employer takes tip credit, a mandatory tip pool is only valid if the pool includes only employees who regularly and customarily receive tips.
If the employer does not take a tip credit, traditionally non-tipped employees, such as those in back-of-house, may be permitted to partake in the tip pool.
Regardless of whether your employer takes tip credit or not, a manager cannot partake in the tip pool.

Wage & Hour Legal Experts Can Help

If you believe your employer has violated Wisconsin tip pooling rules, or if you would like to discuss a wage concern or claim in general, please contact our office to speak with one of our experienced Wage & Hour attorneys. More information can be found on our blog at:

Tipped Employees and Minimum Wage in Wisconsin (2014)
Server Tips, Tip Pooling, & Tip Pool Laws – A Wisconsin Legal Guide (2011)

Natalie Gerloff
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