Restaurant Tip Pooling. All You Need to Know About Tip Pooling

March 19, 2019 • 10 minutes

Kseniia Kyslova
Kseniia Kyslova
Managing Editor and Content Marketer at Poster, collaborates with industry experts and spreads Poster's footprint across the web.

What most commonly causes resentment between waiters and cooks in restaurants? Income disparity comes first to mind. The problem stems from tipping. This voluntary gesture of thanks is widely practiced. Insofar as 20 percent of the check is the standard, tips allow waiters to earn a second salary. And so, those employees who don’t communicate directly with the customers start to feel underpaid.

Restaurant owners realize that the kitchen employees are the heart of their business and do the work that is critical to the diner’s experience. Therefore, the fact that they don’t share in the tips may seem an oversight. However, for waiters, who often make as much as 60% of their income in tips, it may be unclear why they should take these earnings out of their pockets.

Tip sharing and tip pooling are practices aimed at equalizing levels of income for restaurant employees. Although they are supported by law, both remain debatable practices and require much finesse during their introduction. It’s quite tough to make everyone feel they are fairly compensated for their commitment. Check this article to decide whether introducing tip pooling and distribution goes in line with your approach to restaurant management and would make a difference to your restaurant staff.

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What is tip pooling?

In a nutshell, tip pooling boils down to collecting the tips from the tip-earning employees into a common pool and their subsequent redistribution. Who may be included in the tip pool? How are the pooled tips correlated with remuneration policies? In the US, these aspects are regulated by law. However, the procedures for collecting and splitting tips vary by restaurant and depend on managerial decisions.

Tip pooling vs tip sharing

Although both terms refer to tip redistribution practices, they are not synonymous. Therefore, they shouldn’t be confused or used interchangeably. So, what’s the difference? To clarify the tip sharing and tip pooling definitions, let’s compare these practices through their key characteristics. So, what is tip pooling and tip sharing?

Tip Pooling

Tip Sharing

Regulated by law

Can either be voluntary or mandatory

Tip-earning employees share tips with each other and with non-tip-earning employees

Allocations are doled out according to the rules stated in the employee agreement

The employer determines the percentages and procedures for the tip distribution

Allowed by law (but not regulated)

Can only be voluntary

Tip-earning employees share tips with non-tip-earning employees

Allocations are doled out through the discretion of the tip-earning employees

Tip-earning employees choose who, when and how much to share (tip out)

In 2018, the change introduced into the US laws on tip pooling slightly blurred the lines between the two practices. Now non-tip-earning employees are allowed to be in a tip pool. Anyway, in many cases, introducing a policy for pooling tips restaurant owners will regulate only the earnings of the employees working in the dining area, while tip sharing unambiguously means voluntarily giving a certain amount from the tips to kitchen workers.


Best ways for tip pool distribution

How does tip pooling work? Every restaurant owner chooses their own method, considering the nature of their restaurant. Tip distribution formulas can either be simple or complicated and involve percentages, scoring, benchmarking or a combination of all the above. It’s up to you to decide how your team will do this because there is no one-size-fits-all scenario. Consider several methods of tip distribution and find one that would be right for your restaurant. Here are three of the most commonly used tip distribution methods.

An even distribution of the tip pool between all participants is the simplest option. This can work for tip-earning employees who work in the front-office as a single unit. In this case, all members contribute almost equally to the guests’ experience. Therefore, it’s pretty clear that everybody deserves an equal share of the tips, and it’s likely nobody will feel it’s unfair.

A role-based tips distribution works best for teams where employees have clearly defined job roles and contribute to the customer experience differently. In this case, each role is assigned a certain number of points. For example, waiters get 10 points, bartenders 5, bussers 2. Then the employees get their share of the tips in proportion to the points they receive.

Per-hour distribution of tips may be convenient when employees work a different number of hours, say if some of them work part-time. To implement this method, managers should calculate the tips earned per hour during a particular shift. The total sum of tips is divided by the total number of hours worked by all employees during the shift. Then, the number of hours an employee worked that shift is multiplied by the calculated per-hour tip rate.

Tip pooling benefits

When introducing a new tip pooling rule, you might expect it to help you improve two main aspects: level income inequality and encouraging teamwork. If your tipping policy allows kitchen staff to be part of the tip pool, it may help attract more applicants for kitchen jobs. These people may prefer to work for restaurant owners who commit to improving work conditions for their roles. It may help you avoid a labor shortage in the kitchen.

Tip pooling may raise the morale of the employees working in the dining room if they work interdependently. Knowing that everybody contributes to one pool and the tips are split fairly, they are more eager to help each other, won’t neglect side work and argue less over table assignments. If you set up your tip pool in the right way, this will be a step towards bringing your team together and harmonizing their working relations. Check our article about restaurant employee motivation to find out what else can help you strengthen your team.


Restaurant tip pooling laws

The Fair Labor Standards Act (FLSA) regulates payments for tip-earning employees at the federal level in the US. It was amended in March 2018 when the Consolidated Appropriations Act was signed into law. The latest US federal legislation allows employers to make tip pooling mandatory. They are free to include both tip-earning and non-tip-earning employees in the tip pool, provided that every team member routinely making more than $30 in tips each month meets the definition of a tip-earning employee. Not least, restaurant tip pooling laws prohibit owners and managers from collecting and keeping the tips made by employees in any circumstances.

Claiming tip credits does not preclude valid tip pooling. If the minimum wages of the tip-earning staff in your restaurant are partially covered with a tip credit, the amount of tips that covers the tip credit is considered wages. By all means, the tip-earning employees should get their federal minimum wage of $7.25 per hour. The FLSA does not state any benchmarks for the tip pool contributions. Only tips earned over the amount used for tip credits may be put in the common jar.

The FLSA lays down that every time an unlawful tip pooling incident is revealed restaurant owners can be fined $1100. Be aware that state and local jurisdictions often prohibit practices otherwise permitted under the FLSA. Therefore, before giving your tip policy a shot, consult with your lawyer to make sure it complies with every law extant in your area. In our blog you can also lear more about disciplinary measures for employees.


How to implement tip pooling at a restaurant

To develop tip pooling policies that work, you should consider your restaurant workflow and employee management features available in your restaurant POS system to properly arrange the collection and distribution of tips among employees. Before you start, learn the existing methods and consult with fellow restaurant owners. This way you’ll become aware of the methods applicable to places like yours.

When you choose the option that suits your restaurant workflow, discuss it with your team. Some employees may appear more enthusiastic about the change in the tipping policy than others. At this stage, your task is to make sure that everybody is on the same page when it comes to understanding the purpose and the procedure of tip pooling. You have to receive consent to follow the new arrangements from every team member. To avoid misunderstandings in the future, it’s best that you document your tipping policy and include it in the employment contract.

When all is done, assign a team member to be responsible for the tip jar and give it a go. At first, you should keep up with changes that appear in working relationships after your employees embrace the new rules. Listen to the employees’ feedback and encourage them to make suggestions that may improve your tip-pooling strategy.

Pros and cons of tip pooling for restaurants

You may be enthusiastic about introducing tip pooling regulations into your restaurant, but being a good restaurant manager you should remember that good intentions don’t always produce good results. For restaurants where waiters work independently, some can earn high tips thanks to their own sales talent that allows them avoid typical mistakes. In such an environment, high-performing waiters may reasonably resist your tip redistribution initiatives and claim that it’s not their responsibility to care about their low-performing fellows.

Furthermore, numerous legal violations and dishonest behavior by restaurant owners and employees undermine the credibility of tip sharing and tip pooling. It’s not necessarily connected with tip pocketing. Many waiters perceive the entire concept of tip redistribution as the employer’s intention to cover the restaurant’s labor costs at their expense. Especially in those cases when tip credits are claimed to partially cover employees’ wages.

In order to understand why there is so much debate between restaurant operators and their employees, you need to collect the opinions of restaurant owners and staff about the pros and cons of tip pooling. The key to success is in balancing the tip pool and finding the right proportions for the money distribution that will give enough to the back of the house while not causing damage to the front.

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