Texas tip pooling and service charges for restaurants

Texas follows the federal Fair Labor Standards Act for tipped restaurant staff, because the state's minimum wage law excludes employment that the federal law covers. That means the federal tip pool rules apply: owners, managers and supervisors may not take tips from a pool, kitchen staff can be included only if you take no tip credit and pay everyone at least the full minimum wage in cash, and a compulsory service charge is not a tip.

Which wage rules apply in Texas?

The Department of Labor's state table shows the federal rates for Texas: a $7.25 minimum, a tip credit of up to $5.12 and a minimum cash wage of $2.13. The same table lists a tipped employee threshold of more than $20 a month in tips for Texas. The existing guide on the Texas tipped wage and tip credit covers the pay arithmetic. This guide covers what happens to the tips themselves.

Who can be in a tip pool?

The Department of Labor's fact sheet separates two cases. If you take a tip credit, a mandatory pool may include only employees who customarily and regularly receive tips, such as servers, bussers and bartenders. If you take no tip credit, you can run a mandatory pool that includes other staff, such as cooks and dishwashers, but only if every worker in the pool receives at least $7.25 an hour in cash wages.

Who is never allowed in the pool?

Employers, managers and supervisors may not receive tips from any pool, whether or not a tip credit is taken. A manager may keep only tips received directly from a customer for service the manager personally and solely provided. The Department treats a business owner with at least a 20 percent equity interest who actively manages the business as a manager for this rule.

When must tips be paid?

Tips collected for a pool must be distributed by the regular payday for the workweek or pay period. Paying card tips only after the processor settles, or only at the end of the month, is a common cause of claims. The Texas Workforce Commission runs the Texas Payday Law, and its wage and hour program covers tipped employees, deductions and written wage claims, so a late tip payout can become a state claim as well as a federal one.

What is a service charge, and how does it differ?

The Department of Labor 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 overtime. For sales tax, the Comptroller treats a mandatory gratuity of 20 percent or less as untaxed when it is clearly labeled and paid only to the employees who regularly provide the service. The two questions are separate, so answer both for each charge.

Can you deduct card fees from tips?

Yes, within limits. The Department of Labor says an employer may deduct the percentage it pays the card company from credit card tips, so a 3 percent fee allows payment of 97 percent of the tip. The deduction cannot exceed the card company's fee, cannot push wages below the minimum, and cannot delay payment of the tips. The Department notes that some states prohibit the deduction, so read your own state's page.

What should your written policy say?

1. Who is in the pool and how the shares are worked out.
2. When tips are paid and how.
3. That managers and owners do not take part.
4. How a service charge is treated, including the tax line.
5. How card fees are handled.

How do you avoid disputes?

Show the weekly calculation. Keep pool records and hours for every pay period. Change the formula only at the start of a pay period and after notice. If staff ask why the pool changed, the paperwork should answer the question.

A worked example of a pool

A night's card and cash tips total $1,200. The pool covers servers, bussers and the bar. By hours worked, the servers take 60 percent, the bar 25 percent and the bussers 15 percent, which is $720, $300 and $180. A manager who worked the floor all night takes nothing from the pool, even though she carried plates. The next payday, each person sees the tip line on the pay stub and a one-page sheet that shows the totals and the shares. If a tipped employee asks why last Friday was different, the sheet answers the question. If you take a tip credit, check that each person's cash wage plus tips reaches the minimum for the week.

What should you do about walkouts and shift swaps?

Write down how tips are shared when a server leaves mid-shift, trades a shift or works a split. A rule based on hours worked handles most cases. For a worker who leaves before the night's tips are totaled, pay what is owed on the next regular payday, and keep the record. Gaps in these cases lead to the complaints that become wage claims.

More guides for your business:

• Texas mandatory gratuity and sales tax: the 20 percent line
• Texas credit card surcharge rules for restaurants
• Texas paid sick leave and local employment rules for restaurants

More in the US guides for food businesses.