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Tip pooling is a way to distribute tips among restaurant employees. Here’s everything you need to know about how tip pooling works and how to implement it.
Tip pooling is a method of distributing tips among restaurant employees. In a restaurant with a tip pooling system, tipped employees put their tips (or parts of their tips) in common to be shared with other colleagues.
Introducing a tip pooling system at your restaurant can feel daunting when your employees’ livelihood often depends on them, so we compiled all you should know before you start implementing tip pooling in your business.
There are many different ways of implementing tip pooling in your restaurant in terms of how to distribute tips and who should receive pooled tips. Always refer to your federal and state tip laws before deciding on one of these systems.
Choosing one or the other —or a mix— depends on your restaurant and your goals for your business. Some distribution methods can feel unfair for staff who heavily depend on tips, while in some cases tip pooling allows for greater fairness and increased motivation.
A tip pooling system can go to front-of-the-house (FOH) employees (staff with client-facing roles who usually receive tips such as servers, bussers, etc.) only or be shared with back-of-the-house (BOH) employees. This second, “nontraditional” system, allows non-client-facing staff who aren’t usually tipped to also receive part of the share: dishwashers and cooks, for example. Distributing to BOH employees is only possible when an employer pays all its employees a cash wage of at least the federal minimum wage according to federal regulations. Always refer to your local rules since distributing tips to BOH employees isn’t authorized in some states such as California. Here again, the system you choose depends on your business and team goals.
Introducing at your restaurant can feel daunting when your employees’ livelihood often depends on them. The matter should be thought through before implementing it. Here are a few steps on how to go about implementing tip pooling at your restaurant.
The most important aspect of implementing tip pooling is ensuring you comply with federal and local laws. Always ask an expert or a lawyer before implementing a tip pooling system at your restaurant and don’t only refer to online articles such as this one.
In 2020 and 2021, the Department of Labor updated its regulation regarding tips to address 2018 amendments to the Fair Labor Standards Act (FLSA). This Fact Sheet covers most of these tip rules.
Here are some of the basics of what you need to do as an employer when implementing tip pooling:
After you are familiar with the federal and your local regulations with expert help and you understand what are your tip pooling options, it’s time to determine which system works best for your business. Not all tip-pooling methods are right for you and your employees.
Since tip pooling is a sensitive matter that will greatly impact your staff, communication is key. And it’s also mandatory! Make sure you comply with the FLSA and local regulations regarding notification to your employees. We recommend going a step further and always make sure to monitor how your employees feel about tip pooling, ensuring they actually understand how it works and affects them. Communicating with your employees about tip pooling might give you some insights into how well your system is doing.
At sunday, we help restaurants earn more tips with our integrated tip feature. With us, Farm Bar in Chicago increased their tips by 10%. Our dashboard provides you with accurate and updated tracking of tipping at your restaurant to streamline distribution and provide you with valuable data. Tip Pooling has never been so easy! Find all the information you need about tips with sunday here.
Tip pooling has many pros and cons and should be considered seriously before implementation.
On the pros side, tip pooling can increase your staff’s motivation and stimulate teamwork. For example, a busser might want to clean tables faster if they know they’ll receive part of the tip of the diners waiting for a table. This fosters good relationships with the restaurant receptionists who can seat their customers faster —and maybe also earn a bigger tip. And anything that makes your service faster and more agreeable to your diners benefits your business.
However, not all tip pooling systems might benefit your restaurant. The measure might hurt high-performing employees who receive more tips than others. If the pooling rules aren’t communicated clearly, it can create a lack of trust among employees. Tip pooling may also lead to the contrary of what you aim to achieve: disputes among staff instead of teamwork enhancement.
So again, make sure you carefully think about what fits your restaurant and staff best before implementing a tip pooling system.
Although tip sharing and tip pooling are used interchangeably, they are two very different things. Tip sharing, or tip splitting, is entirely voluntary. Tip sharing means an employee will keep a certain percentage of their tip and share the rest with other employees. State and federal guidelines are different for tip pooling and tip sharing.
Suppose an employee receives enough tips to equal at least the minimum wage or overtime compensation required by the FLSA. In that case, employers may take a tip credit towards an employee’s minimum wage and overtime obligations. However, tip credits are only possible under certain conditions, notably in terms of recordkeeping and notice. When the state law differs from the FLSA, the regulation most protective of employees prevails.
