Tips are your staff's money. Getting them right — every shift, to the cent — is one of the fastest ways to build trust with your team. Getting them wrong is one of the fastest ways to lose people, or end up in a wage claim.
This is a general overview, not legal advice. Tip rules vary by state and city, so check with your accountant or employment lawyer.
Tip pools vs. tip-outs
- A tip pool combines tips from a group of employees and redistributes them by a formula — by hours worked, by role points, or evenly.
- A tip-out is when one role shares a percentage with others — for example, servers tipping out bussers and bartenders a percentage of their sales or tips.
Many restaurants use both.
The federal basics (FLSA)
Under the federal Fair Labor Standards Act:
- Employers can't keep employees' tips. That includes managers and supervisors — they can't take a share of a tip pool.
- If you take a tip credit (paying a lower cash wage because tips make up the difference), tip pools can only include employees who customarily and regularly receive tips.
- If you don't take a tip credit and pay the full minimum wage, you can include back-of-house staff like cooks and dishwashers in a tip pool.
- Employees must receive the full minimum wage once cash wage and tips are combined.
States and cities can add stricter rules. Chicago, for example, is phasing out the tip credit, with the tipped wage rising to the full minimum wage by mid-2028.
Where it goes wrong
Most tip problems aren't bad intent. They're math done late at night in a spreadsheet:
- A tip-out percentage applied to the wrong base (sales vs. tips),
- someone's hours missing from the pool,
- card tips paid out without anyone checking the total.
How Tallo handles it
On Pro and Plus, you set your pooling and tip-out rules once, by role. Tallo:
- calculates every split at close, using the hours clocked in Tallo,
- keeps tips separate from your revenue,
- blocks configurations that would put a manager in a tip pool,
- shows each team member their tips in the free Tallo Staff app,
- and exports tip reports for payroll.
Same-night payouts are available, so staff don't wait until payday to see their tips.