Tennessee tip pooling and service charge law for restaurants

Tennessee has no state minimum wage law, so employers must pay covered employees at least the federal minimum, and the federal tip pool rules apply: managers and owners may not take tips from a pool, kitchen staff can share only if you take no tip credit and pay everyone the full minimum in cash, and a compulsory service charge is not a tip. Tennessee also has a statute on how mandatory service charges and tips are distributed, which you should read before you write a deductions policy.

Which wage rules apply in Tennessee?

The Department of Labor's state table notes that Tennessee has no state minimum wage law, so the federal figures apply: a $7.25 minimum, a tip credit of up to $5.12 and a minimum cash wage of $2.13. It lists a tipped employee threshold of more than $30 a month in tips. The existing guide on the Tennessee minimum wage and tip credit covers the pay arithmetic. This guide covers what happens to the tips and service charges.

Who can be in a tip pool?

Who may take part turns on one choice you make as an employer. Claim the tip credit, and the pool is for the people guests actually tip: servers, bussers, bartenders. Pay every worker at least $7.25 an hour in cash and claim no credit, and you may also bring in cooks and dishwashers. Pick one model for each pay period and write it into the policy before the first shift.

Who can never take from the pool?

No tip pool may pay an owner, a manager or a supervisor, whether or not you claim the credit. A manager keeps only what a guest hands over for service that manager personally delivered. If an owner holds a fifth or more of the business and runs it day to day, the Department of Labor counts that owner as a manager for this purpose.

What does the Tennessee statute add?

Tennessee has a labor statute that addresses how mandatory service charges or tips may be distributed, and it limits an employer's ability to reduce the pay that comes from them as a penalty. In plain terms, do not dock a server's share of a service charge to punish a mistake. I have not confirmed the current wording, so read the statute on the state legislature's site, or ask the Tennessee Department of Labor and Workforce Development, before you write a policy that touches deductions.

How is a service charge treated for wages?

The federal fact sheet says a compulsory service charge, such as 15 percent of the bill, is not a tip. If you pay it out to staff, the payments count as wages: they can count toward minimum wage and overtime obligations and go into the regular rate. For sales tax, a charge you add is part of the taxable price in Tennessee, which the guide on mandatory gratuities explains. The two questions are separate, and the answers fit together.

A worked example of a weekend

A restaurant takes $4,000 in voluntary card tips and $900 in automatic gratuities over a weekend. The voluntary tips go to the tip pool for servers, bussers and bartenders, which does not include the manager. The $900 is a gratuity paid to the servers who worked the large parties, which the restaurant treats as wages and runs through payroll with taxes withheld. The tax on the $900 was collected on the checks. The week's paperwork shows each person's share, the hours worked and the date it was paid.

Can you deduct card fees from tips?

Yes, within limits. You may deduct no more than the percentage the card company charges you, so a 3 percent fee allows payment of 97 percent of the tip. The deduction cannot push wages below the minimum or delay payment of the tips. Do not hold tips until the processor settles.

When must tips be paid?

By the regular payday for the workweek or pay period. Late payment is a frequent source of claims, and a written policy with a payout date keeps it simple.

What should your policy say?

1. Who is in the pool and how shares are calculated.
2. When tips are paid.
3. That managers and owners are excluded.
4. How automatic gratuities and service charges are treated for pay and tax.
5. How card fees are handled.

How do you keep a pool fair and documented?

Share the formula in writing, such as points by role or shares by hours worked, and show each person's share on the pay stub or a posted sheet. Change the formula only at the start of a pay period, after notice. Keep the calculation sheet, the hours and the card tips by day for every period. When an employee questions a share, answer in writing within a few days, and correct any mistake in the next payroll. These habits turn most complaints into short conversations and give you the records you need if a claim is made.

More guides for your business:

• Tennessee mandatory gratuity and sales tax: why it is taxed
• Tennessee credit card surcharge rules for restaurants
• Tennessee health inspection scores for restaurants

More in the US guides for food businesses.