Tip Pooling: Complete Guide for Restaurant Owners

Tired of conflicts among your restaurant staff over tips? Tip pooling could be the solution for you!

Tipping has become a widespread practice in many cultures around the world, and it can be a significant source of income for customer-facing employees in the service industry. However, distributing tips can be a complex process that requires careful consideration and management. A common practice for distributing tips in the restaurant industry is tip pooling.

In this blog post, we will explore tip pooling in the restaurant industry, including what they mean, what the laws and regulations governing them, what benefits and drawbacks would they bring to your establishment, how to create a fair tip pooling system, how this could be implemented, how to maximize your tips and how you can leverage technology for this.

1)    Understanding Tip Pooling

Tip pooling refers to the practice of combining all the tips collected by the group of employees and then redistributing them in a predetermined manner (each employee is given a percentage of the pool). Tip pooling is designed to distribute all the tips equitably amongst all employees involved in customer satisfaction. Pooling your tips can be a good choice for cafes or for quick-service restaurants (fast food). In this scenario, even restaurant employees who don't interact with customers directly but play a crucial role in delivering a remarkable dining experience, get rewarded.

Another term commonly associated with tip pooling is "tip splitting" or "tip sharing." This approach to tip pooling is typically focused on servers and other front-of-house employees who directly interact with customers.

These employees typically receive individual tips and tip splitting allows them to be rewarded more for their personal contributions, a common practice is the individual server would keep 60% of the tips they had earned and would put the remaining 40% into the pool.

While the concepts of tip pooling and tip splitting are similar, the distinction between the two lies in the specific group of employees involved and how the tips are distributed. Both practices aim to promote a fair and equitable distribution of tips among all employees who contribute to the dining experience.

I will be mainly discussing the broader term of tip pooling in this article to minimize confusion.

2)    Examining Legal Implications

It is important to consider the legal aspects of tip pooling and to stay within the law (region dependent). 

The cultural attitudes and expectations regarding tipping may be different in their country or region compared to others, and this can have an impact on the way tips are distributed among employees. For example, tipping is not widespread in countries such as Denmark, because employees receive a higher base wage rather than relying on tips for their income.

In some countries such as Canada, the United States, the United Kingdom, and France, tips are considered the property of the employees who receive them, and employers are prohibited from using an employee's tips for any purpose other than as a credit against the minimum wage due. 

In other countries, mandatory tip pooling is allowed, however, it remains controversial, and some workers' rights organizations argue that employees should be free to choose whether they want to participate in the tip pool. Countries, where mandatory tip pooling is allowed, include Japan, Hong Kong, South Africa, and Brazil.

Regardless of the specific laws and regulations in each country, it is important for restaurant owners to ensure that their tip-splitting and pooling practices follow the relevant laws and regulations and that their employees are fairly compensated for their work. 

Failure to comply with these laws can result in legal consequences, which could result in fines or penalties.

3)    Assessing Benefits and Drawbacks

Should tip pooling even be implemented in your restaurant?

Implementing a tip pooling system in your restaurant business can bring significant benefits to both your staff and customers. Here are some of the potential improvements you can expect:

• Teamwork and collaboration. When tips are split among all the staff, it encourages everyone to work together. It also aids in eliminating competition for tips among the workers, promoting a more supportive and collaborative working environment.
• Customer satisfaction. Employees are no longer focused solely on their individual tips; they can instead concentrate on delivering an exceptional experience to the customers. This can lead to increased customer satisfaction and loyalty.
• Efficiency. Tip pooling promotes efficiency by incentivizing employees to work as fast as possible and turn tables over quickly. This leads to shorter wait times for customers and increased revenue for the restaurant.
• Incentivizes the kitchen crew. The kitchen service employees are now financially incentivized to perform their best. Leading to an increase in performance.

There are, however, a few drawbacks to consider when implementing tip pooling in your restaurant. How can this negatively impact your team, you ask?

• Discourages your top employees. High performers take home less, they may have completed their restaurant customer service training and consistently earn the most tips, but they must still add to the pool. This can seem unfair or counterproductive and can lead to tension and arguments. 
• Possibility of unfair distribution. Expressing your employees’ work by a percentage that is not accurate can promote negativity in the company.
• Theft. The most extreme action an employee can make use of is theft, if they feel that they are rewarded unjustly, the employee/s might simply pocket their personal earnings without mentioning it to anyone. This is the antithesis of what a good culture looks like in the restaurant industry.

Whether the benefits outweigh the drawbacks depends on the culture of the restaurant. But if a restaurant decides to implement tip pooling and does it in a structured/systematic manner, the employees can spend less time worrying about dividing their tips and more time focusing on their work. This can lead to a more enjoyable experience for both customers and staff.

4) Creating a Fair Tip Pooling System

Okay, so now that you know how effective tip pooling can be, we are now going to discuss how to create a fair tip pooling system for your restaurant.

To establish a fair tip pooling system, it is important to ensure that the distribution is equitable, fair, transparent, and effective.

Here are some steps you can follow to create a fair tip-pooling system:

• Define the pool. Decide which employees will be a part of the tip pool, such as servers, bussers, kitchen employees, dishwashers, etc.
• Establish how much each person receives. Decide on the percentage of the total tip pool that each employee will receive based on their role and level of service. For example, servers may receive a higher percentage than bussers. 
• Total up the tip pool. Add up all tips collected during the work shift to determine the total pool amount.
• Calculate the distribution. Multiply the total pool number by each employee’s percentage number, expressed as a decimal. 
• Hand it out. Now that tips have been calculated for each employee, they can be safely handed out. 😊

That's it!

Imagine Edward, a server at your restaurant. Based on his role and experience level, you decide that he takes home 15%, which is his pool percentage. Once the evening is over, all the workers divide the pool up equally, from the total of $1000, Edward, based on his percentage receives $150.

This is a general equation that can be applied to any kitchen business, but it may need to be adjusted to suit the specific circumstances of your restaurant. For example, some employees may have a larger role in customer satisfaction, or you may not employ bussers. You know your restaurant team best, and it's up to you to decide how to fairly distribute the tips among your employees based on the factors mentioned above. Consider what will work best for your team and make restaurant process improvements accordingly.

Of course, monitoring and adjusting as you go is a great rule to follow, especially when the finances of your employees are in question. With more time, you might realize other team members deserve a larger percentage of the tip pool, or maybe even a reduction instead!

It is all up to you.

5) Maximizing Your Tip Earnings

When trying to maximize the tips you receive from your clients, there are a few key methods that you can use to maximize the number of tips you may receive.

• Providing exceptional customer service is one of the best ways to increase your restaurant's tips. With proper restaurant staff training, your team can provide a memorable dining experience that encourages customers to leave a gratuity and return in the future.
• This requires investing in restaurant service training for your staff to help them become more attentive, friendly, and responsive to customers.

• Building a relationship with customers is a great way to provide a more personalized service, especially for your most loyal customers. For example, taking the time to get to know them, remembering their preferences, and making them feel valued and appreciated can go a long way. Simple gestures like tweaking or replacing ingredients in their orders and addressing them by name can help build a strong rapport. This can lead to their continued support and potentially more tips for your staff.
• Being open during your restaurant's peak hours can help increase your chances of receiving more tips by serving a larger number of customers. During these busy periods, prompt and efficient service can leave a positive impression on customers, encouraging them to leave a gratuity for your staff.

Remember, you must always be gracious with how much you receive from your clients (if you receive anything at all) and be rude and ask for more. Always deliver the best customer service you can and be grateful for anything extra that may come your way.

6)  Incorporating Tech Solutions

With the advancements in technology, various tech solutions are now available to help restaurant owners and restaurant staff manage their tip-splitting and pooling processes. Examples include Tip Jar, Gratuity Solutions, and Tip Network. These solutions range from simple tip calculators to advanced software systems that can track employee performance, automate tip distributions, and provide real-time reporting and analytics.

Using tech solutions can help with these aspects in your restaurant:

• Streamline the tip-splitting process – Technology can provide a more efficient way to track tips and distribute them among employees. Automated systems can calculate tip distributions on your own base criteria (hours worked, role, etc.)
• Reduce the risk of errors – computers are smart like that; however, they can still produce wrong answers, but only because they were provided with wrong inputs. 😉 
• Compliance – Technology can help ensure that the tip pooling system is compliant with relevant laws and regulations. For example, such software solutions can flag potential violations and alert employers to take corrective action.

When choosing a tech solution, it is important to consider factors such as cost, compatibility with existing systems, ease of use, and security. Restaurant owners should also research the available options and seek advice from industry experts to determine the best solution for their specific needs.

In conclusion, to improve your tip-splitting solutions in your restaurant, you should consider the legal aspects, assess the benefits and drawbacks, create a fair system, maximize your tips, and incorporate technology for better results.

If you found this blog helpful and would like to discuss or learn more about how to spoon.tech can enhance your restaurant operations management and increase productivity through restaurant staff training please fill out our contact form, alternatively, you can reach out to us via phone at (+43 670 655 56 82) or email us at hello@spoon.tech.