Pennsylvania tip pooling and service charge rules for restaurants

Tip pooling is common in restaurants and a frequent source of back-wage claims. Pennsylvania's rules, set out in guidance from the Department of Labor and Industry, follow the federal model with some state detail. This guide, last checked in October 2026, explains who can be in a pool, what happens to a mandatory service charge and what records to keep. It is general information, not legal advice. Rules are updated by regulation, so read the department's page for the current text.

Who can take part in a tip pool?

The department's guidance splits the answer by how you pay. If you pay tipped employees less than the 7.25 dollar state minimum and take a tip credit, the pool may include only employees in jobs that customarily and regularly receive tips, such as servers, bartenders and bussers. If you pay every employee at least 7.25 dollars and take no tip credit, the pool may include other staff too, such as cooks and dishwashers. A mixed approach, where you take a tip credit for some people and not others, needs careful reading of the rules.

Why are managers and owners excluded?

The department says managers, supervisors and employers cannot receive money from a pool. It defines a manager or supervisor by reference to the federal executive-duties test. They may contribute their own tips to the pool, but may not take from it. The guidance gives an example of a bartender who is also a supervisor: if the supervisor takes the order, makes the drink, delivers it and clears the table, they may keep the whole tip from that customer, because they served the customer from start to finish. A shift lead who does not meet the test may qualify as an ordinary employee. Check your job titles against the duties, not the name.

What is the difference between a tip and a service charge?

A tip is voluntary and the guest decides the amount. A mandatory service charge, such as a fixed percentage added for large parties, is not a tip. A law firm summary of the Pennsylvania rule says the employer has discretion over how to use a mandatory service charge. If you distribute a service charge to workers, it counts as wages and goes into the regular rate of pay, and it cannot be used to satisfy the tip credit. Be clear on your menu and your check about what a charge is. If a guest thinks a charge is a tip and adds another on top, you may create a complaint.

Can you deduct card fees from tips?

You may not deduct card processing fees or other transaction costs from tips beyond the actual cost related to the tip, under the rule described in the law firm summary. Many owners choose to absorb the cost. Pay tips out on the regular payday, and show tips separately from wages on the pay stub.

What records do you need?

Keep records of each pool participant's name, position and payout for each pay period, according to the law firm summary of the department's rule. Include the date, the total tips collected, the formula used and the hours worked. Ask the department how long to keep them. If an employee disputes their share, a clear formula and a paper trail ends the argument. Share the formula with your staff in writing and when they are hired.

How should you design a fair pool?

Pick a formula that is easy to explain: for example, hours worked, or points assigned to job roles. Servers might receive one point per hour, bussers a half point and bartenders one point. Pay out at the end of each shift or pay period. Avoid changing the formula in the middle of a pay period. Tell staff in advance, and hold a short meeting when you make a change. A fair pool improves morale, and an unclear one invites complaints.

What about back-of-house staff?

Cooks and dishwashers often earn less than servers. If you want to include them in a pool, you can do so only if you pay all employees the full minimum wage and take no tip credit. Another approach is a separate service charge or a profit-sharing plan. Each has tax and payroll effects, so ask your accountant. Make sure the money comes from the right source, and report it correctly on the pay stub.

What should you do this month?

Read the department's page on tipped worker rules and compare it with your written pool policy. Check that no manager or owner takes from the pool. Review your last pay period's records against the formula. Update your handbook. If you use a point-of-sale system, check how it reports tips, service charges and pool shares, and test a report with your payroll provider.

Consider also how a point-of-sale system handles these items. Many systems can split a charge into a service charge line and a tip line, and can allocate tips to pools automatically. Check that a mandatory charge is not recorded as a tip, because the payroll treatment differs, and that credit card tips are paid out at the card cost only. Run a test day with sample checks, compare the report with what you would calculate by hand, and keep the test as a record. If your provider changes the software or settings, test again.

More guides for your business:

• Pennsylvania tipped wage and tip credit for restaurants: a worked example
• Hiring teenagers at a Pennsylvania restaurant: permits and hours
• How to get more customers to your Pennsylvania restaurant (2026)

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