On the Line / Retention / What is Tip Pooling?

What is Tip Pooling?

With varying views on tip pooling and tip pooling laws, it’s important to understand how your staff feels about pooling tips and implement it in the right way.

Tip Pooling Calculator
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Tip Pooling Calculator

Use the Tip Pooling Calculator to learn how to distribute tips back to your restaurant’s employees using the tip pooling method.

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DISCLAIMER: This content is provided for informational purposes only and is not intended as legal, accounting, tax, HR, or other professional advice. You are responsible for your own compliance with laws and regulations. You should contact your attorney or other relevant advisor for advice specific to your circumstances.

Tip pooling is one of those aspects of restaurant life that has the potential to be very divisive. If you walked into any restaurant in any city and asked the staff how they felt about pooling tips, you're sure to hear any number of answers. The truth is, whether tip pooling is practiced in their establishment or not, servers often have strong opinions about tipping structures and policies. After all, it’s their livelihood: a survey from CreditCards.com showed that of the 2500 people surveyed, the average tip they left a sit-down restaurant was 20%. 

So when you bring up tip pooling, you’re sure to get some opposing feelings - and not all will be positive. But before we dive into the pros and cons of pooling tips, let’s answer one question:

How Does Tip Pooling Work?

Tip pooling is when a portion or all of the tip money from the night is collected and redistributed evenly or by a set percentage — instead of each individual server keeping the tips they earned individually. Tip pooling can help ensure that staff members are fairly compensated for their work, but can be a point of contention for waiters who spent the whole night juggling tons of tables and saw others taking a break in the walk-in. 

Pooled tipping can be a good fit for cafes, when the tips are small to begin with (because of low average ticket size) and when several people are working together behind the counter to get the guest’s order done. When the cashier and barista pool their tips, they are both fairly compensated for their work instead of all the tips being reserved for the person in the customer facing role. Tip pooling can also be 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. 

In some cases, tip pooled establishments can be more conducive to teamwork — even in some full-service restaurants — but it’s important to build a culture of teamwork and collaboration even from the moment you interview new candidates, by letting them know ahead of time that tips are pooled so that everyone can get their fair share. That might not work for everyone, but giving a heads up means that you’ll attract the candidates who do like to work with this model. 

And with the use of online ordering and food delivery services, tips are also often given online prior to the actual customer experience, so tip pooling could be the way forward for establishments that rely heavily on off-premise orders.

An added bonus of tip pooling is that it can also make running payroll simpler — pool the tips, divide them by hours worked or percentage by role, and distribute to staff — instead of having to figure out how much each employee will be taking home one by one. Some products, such as Toast Tips Manager, which is available as part of Toast Payroll & Team Management, further save you time with this process by automating the step of calculating and transferring pooled tips into payroll.

Tip Pooling Calculator
icon RESOURCE

Tip Pooling Calculator

Use the Tip Pooling Calculator to learn how to distribute tips back to your restaurant’s employees using the tip pooling method.

Download
You must have Javascript enabled in order to submit forms on our website. If you'd like to contact Toast please call us at:

(857) 301-6002
First and Last Name is required
Phone Number is required
Restaurant Name is required
What is your role? is required
What best describes your restaurant type? is required
Yes, I’d like a demo of Toast, a restaurant technology platform.
Yes, I'd like a demo of Toast is required
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We’ll handle your info according to our privacy statement.

How are pooled tips calculated?

There are a few different ways to divvy up tips when you split them among restaurant staff.  For example, you might opt to: 

Split tips by hours worked

  • Total tips divided by number of employees and hours worked

Split tips by percentage

  • Certain roles within the restaurant operation earn a percentage of the tips, for example, the hostess makes 10% of the night’s tips and the bartender makes 15%. 

Resources to Implement Tip Pooling

If you’re going to start tip pooling in your restaurant, it’s important to do it right and be transparent with all staff on how it works. Here are some resources for you to get started.

Tip pooling calculator

A tip pooling calculator helps your team calculate the distribution of tips. By understanding the business math behind tip splitting, you can enter in each employee’s time worked by the total tip amount for that shift or use percentages to calculate individual tips. 

Toast Tips Manager

Toast Tips Manager makes it that much easier to distribute tips to the hardworking employees who earned them. At Classic Burgers in Inyokern, California, Abdul Hugais no longer has to worry about cash shortages or making an extra trip to the ATM, as tips are automatically calculated and distributed to his employees paychecks.

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Tip Pooling Laws

When deciding whether your establishment will require staff to pool their tips, it’s important to consider the federal, state and local laws that may apply.  For example, some of the many items you may wish to consider include: 

  • Whether your state requires a written tip pooling agreement between staff and management

  • Which roles can be included in a valid tip pool

  • Any applicable notice requirements 

  • The application of federal and state tip credit laws

How Your Staff Really Feels 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. So if you’re looking to pivot to or away from a tip pooling model, the first thing you’ll want to do is survey your current staff for their preference.

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 can sometimes reflect where they fall in the hierarchy of the restaurant. New servers with fewer job responsibilities and expectations typically love tip pooling, because it allows them to leave at the end of the night with more money in their pocket that they otherwise wouldn’t have. But for experienced servers who have worked for years to perfect their tip-maximizing techniques, being forced to pool tips at the end of the night can feel like a rip off. 

Unfortunately, deciding between tip pooling and tipping out isn’t an easy decision to make either. There are always going to be pros and cons to either decision.

“Neither type of tipping is definitively better than the other,” says Julia Beebe, who worked three summers at a country club with a tip pooling procedure. “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 mentioned above, tip pooling can help create a more collaborative environment in your restaurant. Here are some other upsides to pooling tips:

1) Tip Pooling Increases Back-of-House Wages

In most restaurants, there is a huge wage gap between different restaurant teams. Oftentimes, in the same restaurant you’ll have a dishwasher making minimum wage and servers working for the same or a slightly lower baseline wage, but with an opportunity to earn additional compensation through tips. 

Regardless of how your restaurant manages tipping, this wage gap presents a significant issue in the hospitality industry, and can leave cooks feeling undervalued.

And while certainly not a catch-all solution, tip pooling may help even the playing field between two groups who are, ultimately, both working towards the same goal: customer satisfaction.

2) Tip Pooling Incentivizes Kitchen Crew

Working back of house can be grueling, and back-of-house wages are static, which can be good or bad. 

Whether the kitchen was slammed and at capacity, with the team chopping and grilling and plating and cleaning at full speed for the entire shift, or if it was a slower night, the kitchen crew takes home the same pay. It also means that 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. 

But on the other hand, if the kitchen is slammed from every table being at capacity, servers reap all the extra funds from the full house while 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. 

When tip pooling includes BOH staff, it can inspire them to always be working to their full potential, since their shift pay is now dependent on the tips earned by servers as well.

3) Tip Pooling Can Foster a More Collaborative Work Environment

As mentioned above, one of the primary benefits of pooling tips is how successful of a practice it is at fostering a work environment based in trust, teamwork, and mutual support, even if it’s just within the front of house team. As a motivator, cold hard cash is hard to beat. Everybody wants more of it, no matter where they’re stationed during the dinner rush. When tips are pooled and each member of the team benefits from shared hard work, hierarchies are minimized and every member of your team is more willing to give each shift their best effort — or step in to help a team member in the weeds.

As seen in the New Steps of Service Model, having a tip pool structure encourages FOH staff to operate as a team in order to provide exceptional guest service, which can lead to improved tip percentages.

The Downside of Tip Pooling

For servers accustomed to working for their money and taking home what they have individually earned every night, tip pooling can be a difficult adjustment. Telling your best server that they are now required to give up a portion of their tips to the newbie who started a week ago is sure to be a tough conversation. Servers are used to making their living not off of the $2.13 minimum wage from employers, but off of their tips from customers. 

Keeping your staff happy is a balancing act, so changing your tipping structure should be based on the satisfaction of all your employees. When integrating new restaurant protocols like tip pooling, remember to be prepared for an adjustment period and always stay open to having open conversations with your employees.

If you decide that tip pooling is the best choice for your restaurant, you can make it up to servers who feel slighted by offering great employee benefits, like insurance or more paid time off. 

Tip Pooling in Your Restaurant

Remember, you shouldn’t make the decision to include or eliminate tip pooling all on your own, the only way to know how your staff feels about tip pooling is to have an open dialogue with them. By taking the time to ask your employees what tipping method they prefer, you’re communicating to them that you value their input and care about their wellbeing as employees. It’s also, simply put, a great way 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. 

And for all you servers out there looking to overcome tip pooling dread the good ole fashioned way — by making more money — here is our guide on How to Be a Good Server (and Make More Tips!).

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