Finding the best ways to tip out your staff at your bar and restaurant is extremely important. It plays a big part in determining employee satisfaction and workplace culture, and therefore affects your guests!
Below we go over the need-to-knows legally and logistically for tip pooling, how it benefits business, and the best POS system for restaurants and bars that supports these efforts.
What You Should Know About Tip Pooling
First, we should break down the nitty gritties of tip pooling. Namely, important terms and laws you should know!
Time For Some Vocab
Some businesses simply allow their employees to take home the tips they earned through their sales on any given night, but others prefer to distribute tips among both servers and other staff members in the front and back of house. Before we go into the nuances of each method, let’s differentiate between some key terms here:
Tip pooling: A method by which a business collects all tips and redistributes them to employees based on hours, role, etc. (More on distributing methods to come!)
Pooling tips typically makes the most sense for a taproom-like environment where guests move about the space and interact with multiple employees with one open tab in a floating service model.
Tipping out: Also known as tip sharing, this tip pooling structure lets servers keep a certain percentage of the tips they earned, and then tip out other team members with the remainder.
Tip credit: A tip credit allows hospitality employers to legally pay their employees less than minimum wage, as long as the tips they collect make up the difference.
80/20 rule: Employers must pay staff the full minimum wage if the team member spends 20% or more of their weekly hours doing non-tipped work.
Laws Around Tip Pooling
Keep those flashcards out! Now it’s time to go over some common questions regarding laws specific to tip pooling.
Please note these are constantly evolving, and often differ based on the state you operate in. There’s been lawsuits over illegal tip pooling, so this isn’t information to be taken lightly! It’s always a good idea to double check with your state and local laws.
Can managers, supervisors, and employers be part of the pool?
In most areas, leadership positions cannot be a part of a tip pool. In fact, in some places, managers can’t even touch or count out tips. Make sure to check local legislation before including your management team in a pool.
Can back of house staff be part of the pool?
If there isn’t a tip credit in place, BOH staff are usually eligible to be a part of a tip pool.
If there is a tip credit in place, some areas do not allow BOH staff to participate.
Again, please be sure to check the most up-to-date sources before implementing a certain tip pooling structure for your business. The 80/20 rule, for example, has changed under every presidential term for the past 3 in power.
Divvying The Tip Pool
Cannonball! Let’s dive into the logistics of actually splitting a tip pool.
Who’s In The Tip Pool
We just mentioned who isn’t legally allowed to be a part of the tip pool. So who is?
Typically, servers, bartenders, front of house staff, and back of house staff are all eligible to participate. That means hosts, runners, bar-backs, bussers, dishwashers, cooks, expeditors, etc.
Tip pool participants, as well as exactly how the tip pool is divided, is decided by the business’s management team.
State law also has a say in who can participate in a tip pool. Be sure to check your local legislation before deciding who is in your unique pool.
What Goes Into The Tip Pool
While some businesses pool the entirety of the tips collected every day, that’s not always the case. There are 3 main methods that restaurants and bars determine the funds available in their tip pool:
- All tips collected are put in the tip pool.
- A specific percentage of each servers’ tips are put in the tip pool, i.e. tip sharing.
- A specific percentage of each servers’ sales are put in the tip pool.
It’s important to clarify what is considered as a tip, too. Generally, service charges, surcharges, and auto-gratuities are not considered tips, and must be treated as wages. It’s because they’re all mandated charges and not up to guests to decide.
Now, it’s increasingly a world of digital payments—credit, RFID cards, Apple Pay, etc.—but cash tips must be considered as well. There are many ways to handle cash tips, whether you pay them out every night, week, or on paychecks, but that’s a can of worms for another
day blog post. Stay tuned!
Okay, we know whose hands are in the pot and what’s feeding it. Now how to divide the tip pool?
How The Tip Pool Is Split
There are many different ways to divvy the tip pool, and it all depends on what works best for your business, your staff, and your clientele. Here are some distribution methods:
- Basic distribution: Daily tips are evenly distributed among all eligible staff members clocked in that day. This is most popular in fast casual establishments, where staff generally share and rotate through similar responsibilities.
- Hours-based distribution: The tip pool’s total dollar amount is divided by the hours worked, and then divided among staff members depending on the hours they were on the clock in that same period.
- Role-based distribution: Staff are assigned points or percentages based on their role, and that determines the portion of tips they receive from the pool. In general, customer-facing roles such as servers and bartenders are allotted more points in this distribution method.
- Food and drink-based distribution: Restaurants and bars sometimes create 2 pools: 1 for tips on food orders with servers, and 1 for tips on drink orders with bartenders.
Again, the method that works best for you will look different depending on many factors!
One policy to be aware of here is employer deductions. You’re familiar with credit card processing fees, likely because of your POS system. When guests tip on a credit card, federal law permits employers to deduct a percentage of the credit card processing fee from the tip. (Your individual state may be more strict, so check local legislations!) So, in some states, if you pay a 3% processing fee, you can deduct 3% from tips charged through a credit card. Be sure to also consider how your staff would feel about you implementing deductions like this, though!
Tip Pooling Benefits & The Importance Of Staff Transparency
There are a lot of pros of implementing a tip pool in your restaurant or bar, if done correctly with your staff in mind.
Tip pools reward back of house staff. Typically, BOH team members aren’t recognized for their hard work via guests’ tips. And although they don’t have any face time with customers, it doesn’t mean they aren’t a key piece of the guest experience puzzle. The speed at which ordered items get cooked and assembled, as well as the logistics of simply having clean plateware, all play an important part in ensuring guest satisfaction. With tip pools, BOH staff get a taste of that hard-earned cash, which is a huge incentive in continuing to do their jobs well.
Tip pools foster a collaborative work environment. If everyone gets a piece of the tip pool pie, then everyone is committed to doing the best they can in order to maximize the pool! It also encourages staff to lend a hand when another team member is getting overwhelmed, and to help train new staff members and get them up to speed quickly.
Tip pools increase staff satisfaction. With all staff working their tails off for a common goal, including BOH staff, guests are increasingly delighted by quick, friendly service and delicious drinks and bites.
Transparent Communication Optimizes Tip Pools
Of course, tip pools are only successful for restaurants and bars when leadership communicates openly with staff. For starters, you should talk to your employees about their comfort using a tip pool. Address any concerns, clearly outline the rules of your proposed tip pool, and be sure to check in regularly with staff on how they feel the tip pool is going. In order to create a collaborative environment where tip pools thrive, staff must trust each other and management, and have an open feedback loop.
You should also consider your guests and how their tipping habits can affect your pool. Every business is unique, and it’s worthwhile to invest time into finding the best structure for you. And don’t forget to check the current regulations regarding tip pools in your state!
Whatever you do, don’t overcomplicate your tipping methods. The last thing you want to do is add time and stress to the end of employees’ shifts, or add work to the plate of your payroll specialist. Keep it simple, transparent, and fair, and iterate as your team sees fit!
How The Best POS System For Restaurants & Bars Supports Tip Pooling
Luckily, the best POS system for restaurants and bars offers a plethora of handy tools to support tip pools.
The Best POS System For Restaurants & Bars Provide Robust Reporting Tools
Determining your tip pool’s success is easy with comprehensive reporting tools that track hours, sales, tips, and employee performance all in one place. These are some example reports from the best POS system for restaurants and bars that could be useful in evaluating a particular tip pool:
- Tips by Labor Hour: If you have a lot of employees that are pooling tips and there are many clock-ins and outs throughout the day, a Tips by Labor Hour report is helpful in dividing tips as fairly as possible. You can create mini tip pools based on who clocks in and out and when, and divide tips by those who worked during that period. Plus, see the cumulative results from each tip pool!
- Employee Time Card: If you want to pool tips over the course of a whole day, use an Employee Time Card report. This ensures all tipped employees receive the appropriate share, and it does not differentiate tips based on time of day or shift.
- Employee Performance: Looking at employee performance to see who is bringing in the biggest tabs and tips informs which servers and BOH staff make for the most profitable tables.
The best POS system for restaurants and bars provides pre-built reports like these, and also lets you customize the reports that matter the most to you. Accurate sales and employee information is key to a successful tip pool!
The Best POS System For Restaurants & Bars Provide Tip Pool-Specific Tools
What makes the best POS system for restaurants and bars is an understanding of your business needs. That’s why they offer tools specific to managing and calculating tip pools, such as the following.
Specific to Arryved POS, the End of Day Tip Calculator lets you customize tipped hours, in case the hours an employee worked doesn’t line up with the hours they should receive tips for. It then collects and divides all of the tips for the day among the employees who worked, according to their hours.
You can even add in cash tips to ensure they’re in the pool and evenly distributed. Plus, if you know a server worked for two more hours than they were technically clocked in for, you can edit their hours right then and there to ensure they receive the appropriate amount of the pool.
Tip Allocation Customization
Another customization feature courtesy of Arryved is the option to allocate tips based on the time an order is placed, versus when the tab is closed. This is helpful for instances when a server or bartender clocks out before the guests they were serving leave. Because they started the tab, they can still get a portion of those tips with this tool.
This allocation method also comes in handy if you choose a role-based distribution method for your tip pool. You can manually adjust tip allocation as you see fit at the end of the night!
The best POS system for restaurants and bars provide these tip pooling tools on top of an easy-to-use system in order to reduce service friction and maximize the tips collected! Staff and guests alike will notice the difference, ultimately creating a great place to work for staff and exceptional place to dine for customers.
Do these tools have you curious about the best POS system for restaurants and bars? Look no further than Arryved POS! Get a free, custom demo of the most trusted POS for food and drink today.