Is a Tip Pool Right for My Restaurant?

Do you feel uncertain about which employees should benefit from the tip pool?

As a restaurant owner or manager, deciding how to manage tipping can affect your staff's morale, the level of service they provide, and even your compliance with labor laws.

By the end of this article, you'll know exactly how tip pooling works and whether it’s right for your restaurant. We’ll break down what tip pooling is, its benefits, potential legal concerns, and how to implement it successfully.

Is a Tip Pool Right for My Restaurant?

Running a restaurant comes with many challenges, and one that every restaurant owner has to figure out is how to manage tips. Tipping systems can directly impact your staff's morale, teamwork, and overall satisfaction. The question you may be asking is whether a tip pool is the right fit for your restaurant.

Three Types of Tipping Systems

As a restaurant owner, you have three major tipping models to consider:

• Standard Tipping
• Traditional Tip Pool
• Non-Traditional Tip Pool

Each has its advantages and disadvantages, and choosing the right system will depend on how your restaurant operates, the size of your team, and the kind of experience you want to create for both your staff and customers.

1. Standard Tipping System

The standard tipping system is what most people think of when dining out. Each server is responsible for their section of tables, and whatever tips they earn from those customers, they keep. It’s up to the server if they want to share tips with support staff like hostesses or bussers.

Where It Works Best:

This system is ideal for full-service restaurants where servers are assigned specific sections and handle everything from taking the order to delivering the bill.

Pros:

Direct Incentive: Servers keep what they earn, which motivates them to give great service.

Personal Connection: It encourages a direct relationship between the server and the customer, which can lead to better service and higher tips.

Cons:

Voluntary Sharing Issues: Tip-sharing with support staff is voluntary, which can lead to tension if some servers aren’t willing to share. If one server holds back, it can breed resentment within the team.

Team Culture Required: This system relies on a strong team-first culture to work. Without one, you risk undermining morale. If you can build a culture where voluntary sharing thrives, this system can work. But, if your team struggles with sharing or cooperation, you might encounter problems with fairness and teamwork.

2. Traditional Tip Pool

A traditional tip pool involves all tipped employees—servers, bussers, bartenders—putting their tips into a pool that’s shared among everyone. The employer sets the rules for how much of each server’s tips go into the pool and how they’re distributed to the team.

How It Works:

In this system, servers contribute a portion of their tips to the pool, and the funds are redistributed to other tipped employees. For example, bartenders who prepare drinks for the entire restaurant can get a cut, even if they never directly served a table.

Where It Works Best:

Tip pooling makes sense in fast-casual or shared-service environments where multiple staff members contribute to a single customer’s experience. Think of a setup where one person takes the order, another delivers food, and another refills drinks. It’s also common in bars, where multiple bartenders might serve a customer over time.

Pros:

Team-Focused: This system encourages teamwork since everyone who contributes to the customer experience gets a fair share.

Fair Distribution: Tipped employees who play critical roles behind the scenes, like bartenders or bussers, are compensated for their efforts.

Cons:

Complex Distribution: Deciding how to fairly split the tips can get tricky. What if someone works a half shift or leaves early? Do they get the same share as someone who worked a full shift? You’ll need a clear system to manage these situations.

Can Cause Confusion: The more rules you add for distributing the pool, the harder it becomes to calculate payroll, which could delay payments or cause frustration. The key to making a traditional tip pool work is simplicity. The easier it is to understand and calculate, the less room for confusion or complaints.

3. Non-Traditional Tip Pool

A non-traditional tip pool allows for the inclusion of both tipped and non-tipped employees.

However, there’s one big catch: the employer cannot claim a tip credit, meaning everyone, including back-of-house employees like cooks or dishwashers, must be paid at least minimum wage

How It Works:

In this system, tips are shared not just among servers and bartenders, but also among non-tipped employees like hosts, kitchen staff, and dishwashers. Everyone who helps keep the restaurant running is eligible for a share.

However, managers and owners are excluded from receiving any tips, unless they’re the ones directly serving the table.

Where It Works Best:

This system works well for small, close-knit teams, where employees might step into multiple roles throughout the shift. For example, in a food truck or small restaurant, where every employee pitches in to cook, clean, and serve.

Pros:

Fair Pay for Everyone: This model rewards all staff members for their contributions, even those who typically don’t receive tips.

Simplified Wage Laws: By paying everyone minimum wage or more, you avoid some of the legal complications that come with managing tipped employees, such as Tennessee’s 80/20 Rule, which states that tipped workers can’t spend more than 20% of their time on non-serving duties while being paid a tipped wage.

Cons:

Higher Payroll Costs: Because everyone must be paid at least minimum wage, this system can significantly increase payroll costs. Additionally, losing the tip credit can take away a tax benefit that many restaurant owners rely on.

Potential Cash Flow Issues: Higher wages and no tip credit can strain your budget, especially for small or newer restaurants.

While this model can help foster a stronger sense of unity and reward the entire team, it comes with increased labor costs, which could affect your bottom line.

What’s the Right Choice for Your Restaurant?

At the end of the day, selecting the right tipping system depends on your restaurant’s specific needs. Consider the size of your team, the type of service you provide, and the culture you want to foster. If you’re running a casual dining restaurant where multiple employees handle different aspects of the customer’s experience, a traditional tip pool may be ideal.

On the other hand, if you have a small, tight-knit team where everyone helps out, a non-traditional tip pool might be the best fit.

Patrick Accounting has worked with 100+ restaurants to iron out their behind-the-scenes processes, including things like when to pay out tips and whether or not integrating your POS with payroll makes sense. 

If you are considering implementing a tip pool and are looking for some guidance,

Let’s chat

We’d love to help find the best solution for your business!