Should Your Restaurant Pool Tips?

When it comes to tips, servers rely heavily on what little extra money customers give them to scrape by. Most restaurants rely on either tipping out or pooling tips to manage everything that waitstaff gets in a night, and the method they choose determines whether servers keep what they make or combine all of it for even distribution amongst staff.

What counts as a tip? This is the first thing you need to determine before handling the money. Service charges don’t count toward the total, but credit cards do although some restaurants subtract the processing fee first before giving it to workers. Before making any decisions, first understand what counts as a tip. Then talk to your workers and see how they feel about pooled tipping.

Pros and Cons of Pooling Tips

Tip pooling doesn’t always mean collecting all of the money for redistribution; it can also apply to only a portion of the night’s tips. Most restaurants claim that tip pooling equally compensates all staff members for a hard night’s work, but some employees have concerns that that’s an excuse to lower the restaurant’s base wage. Pooling tips tends to work best in QSRs and environments where multiple services are combined to one payment point; i.e. there’s a cashier and a barista who work together on each order even though only one of them has direct interactions with the customer. They both work equally hard and that teamwork should garner them equal pay. However this isn’t the structure at all restaurants.

Pros of pooling tips:

  • It makes for simpler payroll since it’s easy to calculate how much each worker takes home in a day.
  • It can create a collaborative workplace environment where everyone feels incentivized to help each other out. Supporting coworkers during rough days will get repaid on a day when you’re struggling too. Everyone gets an equal share of the profit, so everyone wants to work together.
  • New employees can find this very useful as they have time to train and get better at the job without worrying too much about losing out on tips. They can pass off hard tables who might be big spenders to more seasoned employees without fear, which means the customers are happier and better taken care of too.
  • It may incentivize the back of house staff to work their hardest no matter how slow or busy the restaurant is.

Cons of pooling tips:

  • It can lower overall morale, especially that of your most hardworking employees. If they’re doing their best but see others slacking off and then are expected to hand over a portion of their tips to their less-skilled coworkers, they’re bound to get frustrated and their overall performance will suffer.
  • Seasoned, respected employees will grow disgruntled that they’re expected to take on the bulk of the work, or the more challenging work, for no additional benefits.
  • Servers very often make less than the back of house staff, especially if they’re earning lower than minimum wage (the federal tipped minimum wage is $2.13). When they have to share their tips with employees who make a full salary, it can cause animosity and ill will amongst staff members when they should be working together.

Disgruntled employees are a huge issue. The restaurant industry suffers from famously high turnover rates, and overall retention is bad in food service. It costs so much time, money and effort to constantly hire and train new employees that it’s hugely detrimental for businesses to lose any more because of a poor tipping structure.

Which Structure is Right for You?

While some staff members are against pooled tipping, others understand how it benefits the restaurant as a whole. The best way to know what your staff is thinking is simply to ask them which structure they would prefer.

Of course, there are also legal regulations to be aware of on both the state and federal level. You should keep these in mind before implementing a tip out structure of any kind:

  • Everyone needs to make at least full minimum wage at the end of the day. If tipping out brings anyone below the federal or state minimum, they can take legal action against you.
  • Tip distribution should be based on the level of service or amount of customer contact each employee performs or has.
  • Employees might need a written agreement between themselves and management regarding tip out structure. Even if they don’t request one, you should clearly detail what your policies are and how the process will work, as that will reduce confusion and promote transparency amongst your workers.
  • According to the Fair Labor Standards Act, you can share tips between the front and back of the house—but only if the employer doesn’t take a tip credit. In other words, everyone needs to make at least full minimum wage as a baseline.
  • Owners, managers and supervisors can’t ask for a portion of servers’ tips.

In 2017, the Trump administration proposed a bill that would potentially allow employers to take home $5B in workers’ tips annually by making it legal for them to include themselves, as well as managers, in the pooled tipping structure, however that part of the Fair Labor Standards Act was eventually struck down during debates.

Regardless, sharing servers’ tips with the back of the house can have disastrous consequences on employee morale and ultimately lead to increased turnover. Management can offset some of the upset by offering benefits like health insurance or paid time off, but the fact is that people need a livable wage to take home at the end of the day. If you’re not providing that, or are distributing a portion of their hard-earned income to back of house workers who already make more than they do as a base salary, at least some of your servers are going to become flight risks. It will negatively impact overall morale which can cause the customer experience to suffer.

Many servers instead prefer “tipping out” at the end of each shift. They still give support staff a portion of their overall tip, while bartenders split their tips and servers keep most of what they made from their own sections. This provides a little extra cash to workers who don’t handle as many face-to-face customer interactions but still work front-of-house, while allowing servers to keep most of what they earn.

The best way to understand what tipping structure your staff prefers and why is to just talk to them. Actually listen to what they have to say. Whichever one you land on, tipping structures work best when they’re designed by the employees that they’re meant to benefit. Your servers know what works best for them based on their current job performance as well as their individual financial needs.

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