Louisiana tip pooling and service charge rules for restaurants

Tip pooling is where good intentions meet payroll law. An owner who wants cooks and dishwashers to share in the money a busy Friday brings in can run into the rules fast, and an owner who adds a service charge to the check can make a mistake the other way. Louisiana has no state minimum wage law, so the federal rules the U.S. Department of Labor publishes for tipped employees do the work. Ask the Wage and Hour Division or an employment lawyer before you start a pool.

Who may share in a tip pool?

It depends on whether you take a tip credit. If you pay servers a $2.13 cash wage and claim the tip credit, the department says the pool you require must be limited to employees who customarily and regularly receive tips. That means servers, bartenders, bussers and similar roles, and not the kitchen. If you pay every employee at least the full $7.25 cash wage and take no credit, you have more room. The department says pools that include back-of-house staff such as cooks and dishwashers are allowed only when all workers receive at least the full cash wage. The credit is a choice you make, and the pool rule follows from it.

What may managers and supervisors never take?

Managers and supervisors may not keep employees' tips. The department says they may keep only tips that customers give them directly for service they alone provided, and they may not receive money from the pool. An owner who works a shift on the floor is in a gray area that deserves a lawyer's review. If you are the owner and the manager, keep a clear line: tips left for staff go to staff, and anything left for you personally should be recorded as such. A written policy that lists who is in the pool and who is not removes most arguments.

Is a service charge a tip?

No. The department's fact sheet states that a compulsory service charge is not a tip. It can count toward minimum wage and overtime, and it must be included in the regular rate of pay. Tips received on top of a service charge may count for tip credit purposes. The practical point is that guests, and many staff, assume a charge on the check is a gratuity, so the way you word and display it matters. Louisiana's sales tax rules also treat a charge differently depending on how it is listed. Our guide on automatic gratuity and large parties covers that side.

How should you write a tip pool policy?

A short written policy is enough if it answers five questions.

• Which roles are in the pool, and which are not.
• How the pool is divided, by hours worked or by points.
• How often it is paid, and on which pay day.
• Who can see the records of the pool.
• What happens when someone leaves in the middle of a period.

Give every employee a copy at hire, have them sign it and keep the signed page. If you change the formula, issue a new copy and keep the old one on file.

What about card tips and processing fees?

Tips guests add to a card belong to the employees who earned them. Many owners pass tips through payroll and pay them with the next check. Be careful if a processor takes a fee from the card total. Whether you may deduct processing fees from tips is a question to settle first, so ask a payroll professional before you reduce a tip by a fee. A conservative approach is to absorb the fee as a business cost.

What records protect you in an investigation?

An investigator from the Wage and Hour Division will usually ask for time records, pay records, tip records and your written policy. Keep payroll records in a form you can print by pay period. Reconcile the tips on your register with the tips paid out, and keep the reconciliation. A pool that adds up every week is easy to defend. A pool whose records are on a manager's phone is not.

How do you explain the pool to new hires?

Talk about it on the first day, not on the first pay day. A new server should hear which roles share, how the split works and when the money arrives, and should see the written policy before the first shift. Staff who understand the pool rarely suspect it, and staff who learn the rules from a coworker in the break room often assume the worst. If you move from a pooled system to individual tips, or the other way round, give notice before the change and explain why. A short staff meeting plus a signed page is usually enough, and it gives you a dated record that the change was announced.

What should you do next?

Write or review your tip pool policy this week. Check whether you take the tip credit, because that decides who may be in the pool. Confirm that no manager or owner receives pool money. Then read how Louisiana taxes automatic gratuities, since a charge added to large parties raises its own questions about tax and pay.

More guides for your business:

• Louisiana tipped wage: no state minimum, so federal rules apply
• Louisiana automatic gratuity, large parties and sales tax
• Louisiana sales tax on restaurant meals: state, parish and New Orleans

More in the US guides for food businesses.