The concept of tip pooling has sparked both applause and controversy over the past few years. And its recent entry into the headlines has businesses in the hospitality industry wondering whether tip pooling is actually such a good idea. And if it is, how should it be implemented, or how should you bring it up with your employer?
In this article, we’ll talk all about tip pooling: what it is, how to make it happen, and why or why not to put it into practice at your establishment.
What is tip pooling?
Tips are typically given only to front-of-house staff who deal directly with the patrons of a restaurant or bar. Distribution of tips may also be staggered depending on rank and job title. Lead servers usually walk away with the majority of tips, standard servers come in second, and runners and bussers receive the lowest percentage. Back of house workers are normally untipped.
With tip pooling, all tips are collected into a lump sum and distributed evenly or again on a ranked basis among all employees at a given establishment. This includes both the front of house and back of house staff.
Tip pooling is often lauded as a more fair and equitable tip distribution philosophy. It ensures that everyone is getting a bonus for time worked and can promote a team-oriented atmosphere where everyone benefits from everyone else’s hard work.
But doing the math on tip pooling can be complicated, and requires management to dedicate a little extra time to figuring out who gets what and how much. In the next section, we’ll talk about some common methods used to divvy up the night’s tips.
Tip pooling methods
How you choose to distribute tips will probably depend on the size and philosophy of your establishment. You can opt to give everyone the same amount, or you can weight distribution based on employee involvement in the jobs which contribute to a positive guest experience. Here are a few metrics you can base your distribution on:
- Hours. This is maybe the most fair and easy-to-understand tip distribution metric. The amount of tips an employee walks away with at the end of the night are determined by the number of hours they worked during their shift.
Example: Split between two employees, the one who worked an 8 hour shift might take home 80 percent of the tip pool, while the one who worked a 2 hour shift would take home 20.
- Points. This method requires you to get creative in how you track performance among your employees. Workers can earn points for the night by meeting the requirements of their job or delivering an especially excellent customer experience. You can track points through customer surveys, tracking time to completion on a given task, or other relevant metrics which you come up with for your business.
Example: When your guests are filling out their check, have them rate the food, service, and overall experience on scales of 1 - 5. Those responsible employees will have their tip takeaway weighted accordingly.
- Percentage. Employers can require that servers contribute a percentage of their tips to a pool which will be distributed among all front of house staff.
Example: servers contribute 10% of their final tips to a pool and receive an equal share of that tip pool back.
Key info on tip pooling
Here are a few critical things to keep in mind when designing your tip pooling method.
- Tip pooling is legal, however must follow a certain set of stipulations in order to be valid. As stated by the Fair Labor Standards Act, owners and employers may not be included in the tip pool: this includes some senior staff and administration.
- Cooks may not be included in tip pools unless the employer chooses not to take a tip credit. Then cooks and other back of house workers may be included in a tip pool.
- Specifics around tip pooling, tip credits, and other details are regulated by the state. Take a look at your state’s government website to learn more about tip pooling laws in your area.
Tip pooling in the news
On September 23rd, 2021, the Department of Labor issued its latest modifying rule to the federal tip-pooling law, prompted by problems related to unfair distribution. The latest legal stipulations around tip pooling state that employers, supervisors, and managers may not be included in a tip pool and will face a fine for taking tips away from their employees. A supervisor or manager in this instance is defined as an “executive employee who meets the test for overtime exemption.” Managers and supervisors can receive tips they earn directly, and may be required to contribute to a tip pool. The penalty for employers who retain employee tips can be up to $1,162 per incident.
From another article, restaurant management solution 7Shifts has released a new program designed to make tip pooling and distribution simpler and more intuitive for restaurant staff. The tool was designed in collaboration with active restaurant workers and promises to make the process easier for everyone involved.
Pros and cons of tip pooling
Still not sure whether tip pooling is right for you? Here are a few pros and cons of tip pooling to think about that may help you decide.
Pro: Improved teamwork. Tip pooling fosters a sense of team spirit by providing a palpable reward which all team members share equally.
Con: High performers take home less. It is difficult to reward on a merit basis with tip pooling, and your top performers may end up taking home less than they deserve.
Pro: Increased sense of responsibility. The work your employees do will have a more direct affect on their coworkers, and performance and motivation may improve.
Con: Possibility of resentment. Your hardworking employees may feel like lower performers are riding on their tailcoats.
Pro: Better reward for side tasks. Your back of house staff and employees with less customer interactions will receive a well-deserved reward for their behind-the-scenes work.
Con: Low performers difficult to track. Unless you are tracking who takes in what, your underperforming employees may slide under the bar and you won’t have an easy method for tracking poor performance.
Final Thoughts: Tip Pooling
Tipping is a tough cookie to crack, and many bars and restaurants are looking for a better way to fairly distribute extra cash among their employees. Tip pooling might not have all the answers, but is one way to make sure customer tips are getting spread as far as they possibly can.
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