On the Line / Retention / What is Tip Pooling?

What is Tip Pooling?

With recent changes to tip pooling laws, it’s important to cover how your employees and staff feel about pooling tips.

Tip Pooling Hero

Servers will always have strong opinions about tipping structures and policies. After all, it’s their livelihood. So when you bring up tip pooling, you’re sure to get some opposing feelings - and not all will be positive. 

But first, what is tip pooling?

Tip pooling is when a portion or all of the tip money from the night is collected and redistributed. Tip pooling helps ensure that staff members are fairly compensated for their work, but can be a point of contention for waiters who busted their butt that night and saw others taking a break in the walk-in. 

Tip pooling works best when multiple services are rendered with one payment point. For example, consider a coffee shop, where one person greets you and takes your order, while the other works their magic on the espresso machine. Tip pooling works great in this scenario because some job capacities limit interactions with the customer. Both the cashier and barista are working equally hard on the same order, yet only one has the opportunity to earn tips directly from the customer. 

Pooled tipping is also a good fit for quick-service restaurants, such as fast-food spots, bakeries, and pizzerias - basically any environment where there is a counter between your server and your guests. These establishments are more conducive to teamwork, so pooled tipping makes the most sense. Tip pooling is also somewhat simpler when it comes to running payroll, and figuring out how much each employee will be taking home. 

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Tip Pooling Laws

It’s also important to consider the legality of tip pooling. There are some recent federal tip pool regulations, as well as state laws. Here’s what you need to know:

  1. Distribution of tip pools should be based on the level of service or amount of customer contact. Tip pools are legal when they are designed by the employees who benefit from pooling.

  2. Employees must walk away with at least the full minimum wage.

  3. All tip pooling policies should be recommended and not mandatory unless specifically approved by your state.

  4. Your state might require a written tip pooling agreement between staff and management. 

  5. Owners, managers, and supervisors are not permitted to ask employees to share tips.

  6. The Fair Labor Standards Act now allows tip pooling for BOH employees, but only if employers do not take a tip credit and pay employees the full minimum wage.

What Your Staff Thinks About Tip Pooling

As employee retention becomes a bigger issue for more and more restaurant owners and operators, staff satisfaction is a huge deciding factor when considering moving to a tip pooling model. 

Needless to say, some restaurant employees are vehemently against tip pooling, some like it, and some don’t love the model but understand how it benefits the whole restaurant. And these varying opinions often reflect where they fall in the hierarchy of the restaurant. 

“I spent three summers working at a high-end country club that pooled servers’ tips during each shift,” writes Toast Marketing Manager Julia Beebe. “When I was a brand-new server, I liked the pooled tipping policy. I was able to learn the ropes and hand off the big, scary tables to more seasoned servers without losing anything in my paycheck. I could also opt to be the expeditor while still getting an equal cut. Life was good.”

“When I started my second summer, I began to see the other side of the pooled tipping method. Now, as a more senior member of the team, I was doing more work and taking the big, scary tables without any extra incentive. At the start of my third summer, I was still annoyed with the pooled tipping method, but it started to grow on me. After going away to college and experiencing the tipping out model, I began to understand why a restaurant might prefer pooling tips. In my experience, pooled tipping definitely encouraged a more supportive and collaborative atmosphere; I didn’t mind helping someone else with their tables because we were all sharing the tips so it benefited me as well.”

It’s worth noting that not all servers view tip pooling as collaborative. In fact, when we brought up the issue on our Facebook page, comments were largely opposed. Especially due to concerns with regulations, stating that BOH staff could now claim part of the tip pool. 

George Mahl, a cook, actually came to the defense of servers. “It’s not fair to servers and bartenders who generally work for wages far below the minimum. To tell them that they have to share tips with cooks who are making roughly five times that is just wrong.”

Restaurant owner and manager Pomaika’i Shishido chose tipping out for his servers over tip pooling, due to its reputation for causing in-house animosity. 

“Tip pooling [creates] a lot of unhappy employees. Managers have to be on them a lot. When I opened my restaurant, [tipping out] is how me and my two other business partners knew how to work. Bartenders split their tips, servers tip out the bar, and servers in their sections keep what they make. All the restaurants I’ve been a part of have had that structure.”

Pomaika’i Shishido

Owner of SP2 Communal Bar + Restaurant

Unfortunately, deciding between tip pooling and tipping out isn’t easy. There are always going to be pros and cons to either decision. “Neither type of tipping is definitively better than the other,” says Julia. “Restaurant owners need to consider the culture they want within their establishment, to determine which tipping model is the better fit for their staff and clientele.”

The Pros of Tip Pooling

As Julia previously said, tip pooling can help foster a more collaborative, supportive environment in your restaurant. Here are some other upsides to pooling tips:

1) Tip Pooling Increases Back-of-House Wages

There is a huge wage gap between different restaurant teams. Take a dishwasher making minimum wage.Servers work for the same or a slightly lower baseline wage, but have the opportunity to earn additional compensation through tips. 

This wage gap presents a significant issue in the hospitality industry. And while certainly not a catch-all solution, tip pooling at least evens the  playing between two groups who are, ultimately, both working towards the same goal – customer satisfaction.

2) Tip Pooling Incentivizes Kitchen Crew

Back-of-house wages are static. If mistakes are made in a kitchen or patrons are left waiting for a dish,, cooks still take home precisely what they would if they made every meal with speed and accuracy.

On the flip side, if the kitchen is slammed from every table being at capacity, servers reap all the funds from the full house. Cooks, who had to make all the food, get none of the tips, even though they would have been paid the same for working a slower, less stressful shift.

Tip pooling could inspire the back-of-house crew to always be on their A-game, since their money is dependent on the tip too.

3) The Restaurant Could Profit More

As stated above, when they know that their money is on the line, cooks could put more attention and dedication into what they are cooking.

The results? Better tasting food, happier customers, and fewer wrong orders. Which means, restaurant owners can worry less about wasted inventory. And ideally, this “found” money could be funneled towards better wages for all employees.

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The Cons of Tip Pooling

For servers accustomed to working for their money and taking home what’s theirs every night, tip pooling can be a difficult adjustment. Telling your best server to give up a portion of their tips to the newbie who started a week ago is tough. Each of your servers will walk into your restaurant with different experiences. Keeping your staff happy is a balancing act, so changing your tipping structure should be based on the satisfaction of your employees - but won’t make everyone happy.  

1) Tip Pooling Means that Restaurants Own the Tips

The way it stands now, tips belong to the front-of-house crew, and restaurateurs have no legal claim to the money. However, this is subject to change after proposed regulations from the Trump administration. This new motion would give ownership of the tips to the restaurant. Owners, in turn, could distribute the funds in any way they see fit – including to themselves, their managers, and their cooks – so long as servers still make actual minimum wage at the end of the day.

It's worth mentioning that respectable restaurants probably wouldn't risk losing a great server by taking nearly all of their wages, but it’s not unheard of for restaurateurs to abuse their power. Notably, Mario Batali was sued for wage theft of the very same kind.

With this new law, it's predicted that employers could pocket over $5 billion annually from server tips legally.

2) It's Questionably Unfair to Servers

You’re going to have servers who walk away from your restaurant if you institute tip pooling. That’s just the reality. Servers are used to making their living not off of the $2.13 minimum wage from employers, but off of their tips from customers.

A way to offset this is by offering great employee benefits, like insurance or paid time off. 

If they know they'll earn less per table, employee morale in the front of house could plummet. And any negativity and resentment could directly impact the customer experience, leading to serious repercussions for your restaurant.

And to summarize.

The only way to know how your staff feels about tip pooling is to have an open dialogue with them. Asking your employees what tipping method they prefer is a great way to get team buy-in and to keep all of your employees happy.  

If you’re looking to make the switch, it’s important to have options in mind for convincing servers why this is the best model for your business. Perhaps in addition to tip pooling, you can introduce paid time off or cash bonuses - something to win over your best servers, who are skeptical about the idea of sharing their hard-earned income. 

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