Texas Tip-Pooling and Tip-Credit Rules in Texas: Compliance and Best Practices

Texas Tip-Pooling and Tip-Credit Rules: Key Takeaways

Tip pooling in Texas is allowed only among employees who customarily receive tips, excluding managers and most non-tipped staff unless no tip credit is claimed.
Employers may pay tipped employees a minimum cash wage of $2.13/hr if tips plus wages reach the federal minimum wage of $7.25/hr; otherwise, they must make up the difference.
Employers should notify employees about tip credits, maintain accurate tip records, and distinguish between service charges and tips to ensure compliance.

Understanding Texas tip-pooling and tip-credit rules is essential for hospitality employers seeking legal compliance.

This guide provides key information on eligibility, wage requirements, and best practices for tip management in Texas.

For an easy way to track distributions, use our tip pooling template.

1. Texas Tip-Pooling Rules and Eligible Participants

In Texas, tip pooling is permitted under specific conditions aligned with federal regulations under the Fair Labor Standards Act (FLSA).

Only employees who customarily and regularly receive tips—such as servers, bartenders, and bussers—are eligible to participate in tip pools.

Review the bartender job description to clarify typical tipped duties.

Including employees who typically do not receive tips, like cooks and dishwashers, is prohibited when employers take a tip credit and pay a cash wage below the minimum wage.

Define support roles with the busser job description when structuring pools.

However, if the employer opts to pay the full minimum wage without claiming a tip credit, non-tipped employees may participate in tip pools but should be cautious to comply with all labor laws.

Exclusion of Management in Texas Tip Pools

Texas law, consistent with federal standards, strictly prohibits managers, supervisors, and owners from participating in tip pools.

The inclusion of management in tip pools is unlawful and may result in legal consequences.

Employers must ensure tip pools are structured only among eligible front-of-house personnel who customarily earn tips to avoid violations.

Tip Contribution Limits and Reasonableness

While Texas law does not explicitly cap tip pool contributions, customary and reasonable contributions are recognized.

The Texas Workforce Commission notes that requiring employees to contribute up to 15% of their tips is generally considered reasonable practice.

This helps balance fairness for employees while ensuring tip pooling arrangements are sustainable and compliant.

Consider modern tip pooling apps to automate fair splits.

2. Tip Credit Provisions and Cash Wage Requirements in Texas

Employers in Texas may take advantage of the federal tip credit, allowing payment of a cash wage as low as $2.13 per hour to tipped employees.

This cash wage plus tips must total at least the federal minimum wage of $7.25 per hour.

If the combined wage and tips fall short, the employer is legally required to pay the shortfall to meet minimum wage requirements.

See state comparisons in our server minimum wage guide.

Importance of Employee Notification About Tip Credits

Employers must inform their tipped employees of the tip credit provisions.

This includes details on the cash wage paid, the tip credit amount claimed, and any tip pooling arrangements affecting their earnings.

Although written notice is not mandated by law, providing clear documentation is highly recommended to prevent disputes and promote transparency.

When expanding your team, follow best practices to post jobs for tipped employees.

3. Compliance Considerations for Texas Employers

Maintaining compliance with tip pooling and tip credit laws in Texas requires diligent record-keeping and clear distinctions between tips and service charges.

Record-Keeping Requirements in Texas Tip Pooling and Tip Credits

Accurate records must document employee wages, tips earned, tip pool contributions, and distributions.

Such records are essential to demonstrate that employees receive at least minimum wage and to verify proper handling of pooled tips.

Outline front-of-house duties using the server job description to set expectations.

Distinguishing Service Charges from Tips

Mandatory service charges collected by an establishment are not considered tips and legally belong to the employer unless specifically shared with employees.

Employers should clearly communicate the difference between voluntary tips and mandatory service charges to avoid confusion and potential legal challenges.

For modern gratuities, review this cashless tipping guide on policies and tools.

4. Best Practices for Texas Tip-Pooling and Tip-Credit Compliance

Employers can foster a fair and lawful workplace by following best practices tailored to Texas regulations.

Provide clear, written notifications to tipped employees regarding tip credits and pooling policies.
Establish transparent tip pooling agreements with defined eligible participants and contribution limits.
Keep detailed and organized records of tip pool transactions and wage payments.
Regularly audit payroll and tip distributions to ensure full compliance.
Train management and staff on legal requirements to prevent inadvertent violations.

Clarify lounge roles with the cocktail server job description before setting pools.

5. Legal Resources for Texas Employers on Tip Pooling and Tip Credits

For authoritative information and assistance, consult these resources:

Texas Tip-Pooling and Tip-Credit Rules: Compliance Guide Conclusion

Texas hospitality employers must adhere to both federal and state guidelines governing tip pooling and tip credits to ensure lawful pay practices.

By carefully structuring tip pools with eligible participants, meeting cash wage requirements, providing employee notifications, maintaining accurate records, and distinguishing tips from service charges, employers can foster transparency and fairness.

Staying informed about legal updates and consulting official resources helps avoid costly violations and supports a positive work environment for tipped employees.

01. Who is eligible to participate in Texas tip pools?

Only employees who customarily and regularly receive tips, such as servers, bartenders, and bussers, are eligible to participate in tip pools. Management and most non-tipped staff cannot participate when a tip credit is claimed.

02. What is the minimum cash wage employers may pay tipped employees in Texas?

Under federal law, employers may pay tipped employees a cash wage as low as $2.13 per hour, provided that tips plus wages equal at least the federal minimum wage of $7.25 per hour.

03. Can managers participate in tip pools in Texas?

No. Texas law and federal regulations prohibit managers, supervisors, and owners from participating in tip pools.

04. Are employers required to notify employees about tip credits in Texas?

While Texas law does not mandate written notice, employers are strongly encouraged to inform tipped employees about tip credit provisions and any tip pool arrangements to ensure transparency.

05. How should employers distinguish service charges from tips?

Employers must clearly communicate to employees and customers the difference between voluntary tips and mandatory service charges, which legally belong to the employer unless shared.