In my first and only job in the food service industry, I worked as a cashier at the counter of a fast-casual burger joint. I was chosen to be a cashier because my enthusiastic friendliness would prompt diners to actually leave a tip when the POS asked if they wanted to. Yes, we were one of those. As a customer, it bothers me that I am expected to tip when ordering from a counter. But at this particular job, I was the one working for a tipped wage and the fact that there was a tip pool kept the team happy eager to have me handling the customer service at the counter. Knowing what I know now, a tip pool worked well for that restaurant. In order to keep the team happy, a restaurant owner needs to know what tipping system is right for their team, and who can be a part of it.
The Three Types of Tipping Systems
As a restaurant owner, you will need to decide which kind of tipping system to implement for your staff. There a several factors to consider, but the three tipping systems to explore are standard tipping, the traditional tip pool, and a non-traditional tip pool. Each has its own set of rules that need to be followed.
The standard tipping method is how most every customer imagines tipping to work, and for many full-service restaurants, this is the case. The hostess seats the guest at a table in a specific section, each waiter has their own section, and whatever gratuity the customer provides, the waiter keeps. In this system, the decision of whether or not to “tip share” is up to each waiter. They can enter a formal agreement to share a pre-determined percentage or amount of their tips with their supporting co-workers. If the amount the supporting co-workers get exceeds $20 a month, those tips will need to be recorded in their income. It makes the most sense to use this system of tipping when your customers order and dine from the table, and your dining area is large enough to support multiple sections.
The pitfall with the standard tipping system is the voluntary nature of sharing. It can be a really encouraging system to see your team care for one another when they share their tips with the hostess or busser. It serves as an organic boost to morale and bonds the team, which will reduce turnover. However, even if only one member of the team chooses not to share any tips, it can create bitterness among the entire team. In truth, tips often make or break a server’s budget, so it can be hard to willingly reduce the amount they take home. That said, creating a solid team-first culture could be the solution you need to make this system work for your restaurant.
Traditional Tip Pools
The second system to explore is the traditional tip pool. In this system, the tips are pooled and split among any workers that would regularly be tipped. The employer is allowed to mandate a traditional tip pool as long as the pool only pays out to other tipped employees. It is the employer’s responsibility to clearly communicate how the pool works and the amount of tips that are pooled. In this tip pool, it is not necessary for all of the tips to be taken from the servers. Perhaps you only require your tipped servers to pool a certain percentage of their total tips to then be redistributed among other tipped workers. For example, bartenders at some restaurants could be responsible for making drinks for the whole house, so a portion of each server’s tips is added to the pool and distributed among the bartenders. It makes the most sense to use a tip pool when the service to the customer is handled by many hands. Think of the fast-casual environment where one employee takes the order, another serves it to the table, and another walks around refilling drinks and busing tables. Or at a bar, where a customer can keep a tab open and get service from three different bartenders, but only pay and tip one time.
The downside of running a tip pool is having to calculate the distribution of the tips. It can be simple to say that each member gets an equal share, but what happens if an employee gets to leave early on a slow night? Does that employee get removed from the pool? Is their cut be prorated for the hours that they worked? At the end of the day, it is best to choose a system that is easy to understand and easy to track & calculate. The more contingencies your plan includes, the longer and harder it will be to determine who gets paid what. There is no need to make entering payroll take longer.
Non-Traditional Tip Pools
The final system to explore is the non-traditional tip pool. In order to implement the non-traditional pool, the employer must not claim tip credit. This means that all employees of the restaurant work for at least minimum wage. For some owners, this is already a non-starter. This is the only pool that allows tips to be disbursed to non-tipped employees. If you want cooks, dishwashers, hosts, and bar-backs to receive funds from the pool, this is the system for you. It’s important to note, however, that in this system, managers and owners are still NOT allowed to receive funds from the pool. The only time that a manager can get tipped is when they are the sole server of a table and receive a tip from their customer. A non-traditional tip pool makes the most sense for small teams, when each employee may have to step in to cover different tasks, or when each employee is trained to work in every role, like in a food truck.
The drawback here is that you as the owner are not allowed to claim the tip credit, which can be a hefty tax break for employers. Additionally, the increased wages would increase overhead costs and could potentially cause issues with cash flow. However, the unseen benefit of a non-traditional tip pool is that you are no longer on the hook for laws like the Tennessee 80/20, which states that in the state of Tennessee, you cannot pay a tipped wage to a worker for any given hour if they spent more than 20% of that hour doing non-serving related tasks. In addition, it can also remove some confusion when it comes to calculating overtime.
What’s the right choice for your restaurant?
Whirks has worked with 100+ restaurants to iron out their behind-the-scenes processes, including things like when to pay out tips and whether or not integrating your POS with payroll makes sense. If you are considering implementing a tip pool and are looking for some guidance, book some time to chat with one of our payroll experts. We’d love to help find the best solution for your business.