Tip Pooling & Sharing: The Complete Guide for Restaurant Owners

Many restaurant owners implement a tip pooling system between servers and supporting staff. While the servers are the main point of contact for the restaurant patron, good service cannot be delivered without the help of other staff members.

You may also be looking to start a tip sharing policy for the first time for any new business operations you started during the coronavirus pandemic.

Did you hire a new to-go or delivery crew? Is there anyone that performs curbside operations now? With everyone working to increase efficiency in these new practices, it makes sense to split the tips that the customer-facing employee receives.

Understanding Tip Pooling

Between complying with different legalities around tip splitting and choosing between different options, the process can be a difficult one—that’s why we’re here to help.

We’ve laid out everything you need to know to make tip splitting as seamless and simple as possible, from the legal information to a breakdown of the differences between the choices and how to implement them with ease.

We even included a custom tip distribution calculator so you can tip split like a champ.

What is a Tip?

The Internal Revenue Service (IRS) defines a tip as “discretionary (optional or extra) payments determined by a customer that employees receive from customers.” These payments are typically found in the hospitality industry and include:

  • Cash tips directly from customers.
  • Credit card, debit card, gift card, and any other electronic payment method or charged tip.
  • Any non-cash tip value such as tickets.
  • Tips received from other employees paid out through tip pools or tip splitting, or other formal or informal tip sharing arrangements.

In general, the tip amount is the cost of the service multiplied by 0.XX, with XX being the percentage you want to leave as a tip. Your total cost (service and tip) is your cost multiplied by 1.XX, with XX again being the percentage you want to leave the staff.

What is Tip Pooling?

Tip pooling means all or some of the tips collected are combined and redistributed fairly among all employees at the end of a shift.

A tip pooling policy makes sure every restaurant group of employees—including back of house staff such as cooks and dishwashers—benefit from tip pooling arrangements.

What is Tip Sharing?

Tip sharing means getting a certain percentage or amount of collected tips and splitting them between non-salaried employees.

Tip sharing is typically done based on an agreed-upon arrangement or understanding among employees.

It allows for a bit more flexibility, as employees have the autonomy to decide who they share their tips with and the amount they choose to share.

Tip Pooling vs Tip Sharing: What’s the Difference?

While sometimes used interchangeably (which isn’t accurate), the main difference between tip pooling and tip sharing is that tip sharing is entirely voluntary and doesn’t carry the same mandatory guidelines as tip pooling.

You must meet the following requirements to implement tip sharing:

  • You must pay tipped employees at least $2.13 an hour (the minimum cash wage) and the federal minimum wage.
  • You can’t claim a tip credit above $5.12.
  • You can;t claim a tip credit that exceeds the amount of tips actually received by the tipped employee.
  • Employees must know that you’re applying a tip credit.

Notable Tip Pooling Laws in 2023

Federal Tip Pooling Laws

According to federal law, employees who receive tips are classified as tipped employees if they make more than $30 in tips per month.

In these cases, you can pay tipped employees less than the standard minimum wage, as long as the total amount of tips, combined with the hourly pay, reaches or exceeds the federal minimum wage of $7.25.

If the combined wages fall short of the minimum wage, you’re required to make up the difference through a tip credit.

Tipped Worker Federal Regulations

In 2021, the U.S. Department of Labor made some updates to the regulations regarding tipped workers. These changes apply to various sections of the Fair Labor Standards Act, including section 3(m).

Here are the key points:

  1. Employers, supervisors, and managers are not allowed to keep any portion of employee tips, even if a tip pool is in place.
  2. If you pay tipped employees the full minimum wage without applying a tip credit, non-tipped employees like cooks and dishwashers can participate in the tip pool.
  3. Employers that collect tips to operate a mandatory tip pool must distribute the tips entirely within the same pay period in which they were collected.
  4. Employers who do not take a tip credit but still collect employees’ tips for a mandatory tip pool must maintain payroll or other records that include information about each employee who receives tips, as well as the amount of tips reported by each employee on a weekly or monthly basis.
  5. The 80/20 rule has been reinstated. It states that employers can use tip credits only if at least 80% of an employee’s work involves activities that generate tips (such as serving food, providing table service, making and serving drinks), and no more than 20% involves support work (like setting tables or cleaning the bar).

3 Methods of Tip Splitting

When it comes to tip splitting and tip pooling, there are several different options that can be set by you as long as your employees agree, including:

Here’s a breakdown of each method and how it works.

1. Tip Splitting Based on Hours Worked

Some restaurants split tips based on how many hours an employee worked. Since there are both full-time and part-time servers, it wouldn’t necessarily be fair for those who worked a full shift to split tips with those who only worked the dinner rush.

To split servers’ tips based on hours worked, add up the total amount of tips and then divide that figure by the total hours worked. Then, multiply THAT figure by the hours an individual server worked.

Hours Worked Tip Splitting Example

Here’s an example:

  • Your employees earned a total of $1,000.
  • Server #1 worked an 8-hour shift.
  • Meanwhile, server #2 worked a 5-hour shift.
  • Lastly, server #3 worked a 7-hour shift.
  • The total number of hours worked is 20.

$1,000 divided by 20 is 50, so multiply that each employee’s hours.

  • Server #1: 50 X 8 = $400
  • Server #2: 50 X 5 = $250
  • Sever #3: 50 X 7 = $350

To check your calculations, make sure the individual employees’ take-home tips equal up to the total amount of tips earned in the shift.

Using a time tracking software like Homebase makes it easy to monitor hours work, simplifying your tip calculations.

2. Tip Splitting Using the Points System

A points system is an effective way for you to pool 20-100% of the servers’ tips and fairly disperse them amongst all employees, including bussers, bartenders, hostesses, runners, and other staff members who help keep the restaurant service running smoothly.

This method also helps keep staff happy by ensuring that no one has a particularly terrible shift.

The dispersion is usually done on a percentage basis that is calculated with a point system. Different types of employees are given a certain number of points. These points determine the percentage of the tip pool they receive.

Point System Tip Splitting Example

Let’s say your servers are given 10 points each, and your bartenders and bussers were given 5 points each. If $1,500 in tips was earned in a shift, it would look like this:

  • Servers (3): 30 points
  • Bussers (1): 5 points
  • Bartenders (2): 10 points

Total points: 45

  • Divide the total number of tips ($1,500) by the total number of points (45) and you’ll get the worth of each point, which in this case is $33.30.
  • Multiply each staff member’s points by $33.30
  • This results in the servers will each receive $330 and the busser and bartenders will each receive $166.50.

3. Tip Splitting Based on Percentage

Another form of tip splitting involves servers using the honor system. A restaurant tip-out structure includes tipping out the support staff based on a percentage of the tips they earned.

Each of the supporting service roles is assigned a percentage of the total tips. Usually, the percentage split would be 10% to the bartender and another 25-30% shared among the remaining employees.

Percentage Tip Splitting Example

Here’s an example based on a to-go crew. If a delivery driver’s total sales equaled $1,000 and they earned $200 in tips, here’s how much the rest of the staff could earn:

  • The cook would receive $20 (or 10%)
  • The hostess (or person taking orders) would receive $12 (or 6%)
  • The order preparer would receive $26 (or 13%)
  • The busser would receive $12 (or 6%)
  • The delivery driver would take home $130, which equals 65% of their total earnings

Tip Distribution Calculator 

Regardless of the method, it’s important to make sure you stay on top of the process.

We’ve put together a free tip splitting spreadsheet to take the headache out of keeping up with who gets what.

Tip Pooling FAQ’s

Can an Owner be Part of a Tip pool?

Depending on the state, local, or federal laws in your area, as well as your business structure, the answer is mostly no. There are some exceptions, however, but most laws indicate that an owner or manager is not allowed to take a tip that is left for an employee.

Is Tip Pooling a Good Idea for Small Restaurants?

Pooling tips can have its advantages and disadvantages, but it is common in many restaurants and bars. The most important thing is to communicate with your staff about your intentions and accept their feedback or criticism. After all, you are asking them to share their money.

How Much Should a Server Tip Out a Bartender?

The amount a server should tip out to a bartender in the US can vary depending on the restaurant’s policy. Typically, it ranges from 10% to 20% of the server’s total tips earned.

However, it’s important to check with the specific workplace to know the exact percentage or amount to tip out.

What are the Standard Restaurant Tip Percentages by Role?

In general, the standard tip percentages in restaurants by role are as follows: servers usually receive 15% to 20% of the total bill as tips, bartenders are often tipped around 10% to 15% of the drink costs, and busboys or bussers may receive around 5% to 10% of the server’s tips.

These percentages can vary based on individual preferences, inflation and the restaurant’s policies.

Can Managers Join in Tip Pooling?

Direct participation in tip pooling by managers and supervisors is not allowed. They are only entitled to tips specifically given to them for services they personally provide.

What Distinguishes Tip Pooling from Tip Sharing?

Tip pooling usually requires mandatory participation and is overseen by the employer. In contrast, tip sharing is an optional agreement among employees.

What Is the Proper Way to Distribute Tips in a Pool?

Tips should be allocated to staff participating in the pool based on a reasonable and equitable system, such as hours worked or a points-based system.

What Are the Consequences of Non-Compliance with Tip Pooling Rules?

Employers who fail to adhere to tip pooling regulations, like including ineligible staff or unfair distribution, risk violating federal laws.

What Are the Advantages of Tip Pooling?

Tip pooling fosters teamwork, ensures equitable compensation across different roles, and addresses pay disparities between front and back-of-house staff.

What Are the Potential Downsides of Tip Pooling?

The main criticisms of tip pooling include dissatisfaction from higher-earning employees who have to share their tips and a potential decrease in motivation as tips are evenly divided, irrespective of individual performance.

What Is a Tip Credit?

A tip credit allows employers to count a maximum of $5.12 per hour of tips towards meeting their minimum wage obligations.

Are Employers Allowed to Keep Tips?

Federal law strictly prohibits employers from retaining any part of the tips.

Must Servers Report Their Tip Income?

Servers are legally obligated to report all of their tip income.

How Are Tips Handled at the End of a Business Day?

Employers are required to distribute all received tips fully by the end of each business day.

Can Back-of-House Staff Be Included in Tip Pools?

Back-of-house employees, like cooks and dishwashers, are allowed to be part of tip pools if the employer pays them the full minimum wage and does not apply a tip credit.

Related posts

Why Your Business Needs an Employee-First Culture

The competition to get and keep the right talent is fierce. Now businesses face a choice: stick with traditional management…

Read article

Team Management Made Simple with Homebase

Elements of a healthy and successful team Managing a team can seem like a game of whack-a-mole. When one problem…

Read article

Create an Effective Task List to Better Manage Your Small Business Team

As a small business owner, managing a team for the first time can be a daunting experience. It’s like being…

Read article

How to Make a Work Schedule

Let’s face it—scheduling can be stressful. And if you’re new to creating work schedules, it can be a bit complicated…

Read article

Unleash Your Team’s Potential with Time Tracking

As a small business owner, you know that every minute counts. Whether you’re running a bustling coffee shop or a…

Read article

Brand Identity and Reputation: How to Stand out as a Small Business

You know your business like the back of your hand, but do your customers understand why your company is unique?…

Read article
Effortlessly schedule and track your team's time with Homebase.
Try our basic plan free, forever.
Try Homebase for free