Restaurant Operations

How Restaurant Tip Pools Work and How Service Charges Differ

By Thmenu Team · Published 31 October 2026 · Reviewed by Kerim Sağlam, Founder, Synaltix LLC — approved for publication in bulk (owner decision 2026-11-06)

A tip pool collects the tips from a period, such as a shift or a week, and shares them among the people who worked it, usually by hours worked. It only works if everyone can see what went in, who was counted and how the split was done. In the US, federal law also limits who can take part: an employer, manager or supervisor may not keep employees' tips through a pool. A service charge is not a tip at all, and is handled differently.

Tips, tip pools and service charges are different things

The difference matters, because the law and the tax rules treat each one differently.

• A tip is money the guest chooses to give, in an amount the guest decides. US federal tax guidance adds that whether a payment counts as a tip depends on the facts and circumstances.
• A tip pool is a way of sharing tips that were already given. Money a server receives from a pool is still treated as tips.
• A service charge is a fixed charge the restaurant adds to the bill, such as a set charge for large parties. Under US federal wage law it is not a tip, and when a restaurant pays it out to staff, US federal tax guidance generally treats it as wages paid by the employer.

If you add a service charge, say clearly on the menu and the bill that it is not a tip, and decide in advance what happens to it. That way guests know whether a tip is already included.

Who can be in a tip pool

In the US, the federal rules on tips are set by the Fair Labor Standards Act and explained in the Department of Labor's fact sheet on tipped employees. In short:

• If you pay tipped staff less than the full federal minimum wage in cash and count tips toward the rest (a tip credit), the pool may include only employees who customarily and regularly receive tips, such as servers, bussers and bartenders.
• If you pay the full federal minimum wage in cash, the pool may also include employees who are not in tipped jobs, such as cooks and dishwashers.
• Either way, the employer may not keep any part of the tips, directly or through the pool. A manager or supervisor may keep only tips they receive directly from a guest for service they directly and solely provide.

States and other countries often have their own rules, and some are stricter than the federal ones. Check the rules where you operate before you set up or change a pool.

Splitting by hours, points or role

Most pools use one of three methods. Whatever you choose, write it down and share it before the period starts, not after the money is counted.

Splitting by hours is the easiest to explain and to check: anyone can multiply their hours by the amount per hour and get their own share.

Keeping a record staff can trust

• Say which tips are in the pool: card tips only, or tips paid in paper money too, and from which shifts.
• Use real clock-in and clock-out times for hours, not estimates written in later.
• Show the total, the hours and each person's share before you pay, so mistakes are caught early.
• Write down any change by hand, and why, next to the person it affects.
• Keep the record after you pay. Staff report their tips, and the numbers should match.

Under the IRS page on tip recordkeeping and reporting, employees report their cash tips to their employer by the 10th of the following month, unless they received less than $20 in cash tips from that employer in the month. In the IRS's sense, cash tips are not only paper money: they include tips paid by card, check or app, and tips received through a tip pool.

Tip pools with Thmenu

In the Thmenu panel you create a tip pool for a period, then add the people in it with their hours, typed in by hand or filled from the time clock's finished shifts. A preview shows the tips counted and each person's share before the shares are saved. The tips counted are those guests added to orders that were not cancelled and were either recorded as paid or left to be paid at the table, plus the extra tip chosen when a table asked for the bill and the bill was collected. Payments that never went through, expired or were refunded are left out. Service charges are not counted as tips. Cash that guests hand straight to your staff is not in Thmenu either, so it is not in the pool: share it outside the pool, or add it by hand as an adjustment.

Thmenu splits the pool by hours, to the cent, and you can adjust a person's share up or down. Lowering one person's portion does not move that money to the others, so the pool then distributes less than it collected. Remember the rule above: an employer may not keep any part of employees' tips. When you close the pool the shares are saved; if something is wrong you can reopen it. After you pay your staff, you mark the pool as paid, and it can no longer be changed. Thmenu calculates and records the split. It does not pay staff, move money, run payroll or report taxes, and it does not decide who may be in your pool.

The service charge is set separately, as one rate in the tax and service charge settings. It is added on top of the subtotal and tax and shown as its own line on the receipt.

Who can open the panel, and what each person can do, is covered in restaurant staff roles and permissions.

See the whole Thmenu panel, including staff and tip pools.

This is not legal advice

This article explains general US federal rules as published by the Department of Labor and the IRS on the dates listed below. It is not legal or tax advice. Rules change, and state and local laws can add to them. Ask an employment lawyer or accountant where you operate before you set up a pool or a service charge.