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Tip pooling, tip tracking, and other concerns

Managing tips has become a hot-button issue in the service industry. Some wait staff enjoy the challenge of earning bigger tips by exceeding customer expectations. Others, however, dislike the uncertainty that comes along with a tip-driven income.

In addition, keeping track of all tips for tax purposes can get messy in a hurry. Thankfully, there are more ways to address the gratuity issue than ever before. As a manager, you can decide whether tips should be pooled, tracked, or even eliminated altogether.

Of course, Homebase can help. When you use Homebase with select point-of-sale system partners, we’ll be able to automatically sync sales and tip data to give you more comprehensive labor cost reporting.

What works for your particular organization will depend on factors such as your location and the type of restaurant you run. A fine dining establishment will likely have a different gratuity situation than a neighborhood burger joint, for instance.

Also, choosing the best method of tip management for your restaurant can help increase your employee’s job satisfaction and prevent conflicts. It helps to know the temperament of your workers — some staff will thrive with a little competition for tips, while others may get frustrated by the fluctuations in their income.

By carefully considering the pros and cons of the many ways to approach tips, you can choose the method that best suits your restaurant and staff. In the end, there are many ways to address the tipping situation; you just need to choose the method that keeps your workers motivated and financially secure.

Because however you choose to deal with tips, your customers will always appreciate friendly and prompt service from a happy wait staff. [bctt tweet=”Carefully consider pros and cons of tipping. Choose the method that best suits your restaurant and staff” username=”@joinhomebase”]

Pooling tips: yea or nay?

Pooling tips may encourage employees to work together, providing better overall service to customers. “Working as a team, everyone is more genuine and sincere in their delivery of service,” said Ceia Kitchen + Bar owner Nancy Batista-Caswell in Full-Service Restaurants Magazine.

This may encourage wait staff to help out diners who are not in their section, as well as build a sense of community with their fellow servers. Additionally, pooling tips may provide a more even distribution of income for servers who work with less profitable sections, according to Restaurant Business Online. In general, pooled tips may help your servers pull together as a team and obtain a more stable revenue stream.

On the other hand, some managers feel servers are more motivated when they have to earn their own tips. According to assistant professor of finance Noah Smith in Bloomberg View, tipping is helpful because it can reward servers directly for good service, providing them the incentive to go above and beyond for every table.

Unfortunately, as anyone who has worked in the industry knows, there is not always a direct connection between great service and big tips. Even so, the potential to instantly earn more money for superior service can be a strong motivating force.

There may be legal issues to making tip pooling mandatory, so it is a smart idea to let your staff decide whether to make it voluntary. As explained on, pooling works best when it occurs only among directly tipped employees, and no supervisors are allowed to get in the pool.

It is helpful to note, however, that tip pooling laws vary by state, so it is a smart idea to familiarize yourself with your local laws and requirements. 

Tracking and reporting tips

Keeping track of your employee’s tips is crucial for tax reasons, but this can put serious pressure on restaurant owners. And it doesn’t help that, in recent years, the Internal Revenue Service has suspected restaurant managers of significantly underreporting tips. Even the most honest restaurant servers and managers may have difficulty tracking tips, though, because keeping up with every dollar left on a table can get complicated in a hurry.

Credit cards are one easy way to keep track of all tips automatically and in a way that cannot be concealed, according to the Houston Chronicle. Tips on credit cards are also fantastic for helping you record the tip earnings for reporting estimates, as the article further noted. Using plastic is an easy way for customers, servers, and tax professionals alike to keep up with your restaurant’s fluctuating gratuities.

Lastly, the task of reporting tips can get complicated quickly. Although many restaurants rely  on the 8 percent rule, this is not necessarily the most accurate method of tip reporting.

In reality, you are required to report 100 percent of tip income; the 8 percent rule is just a form of compliance monitoring, as explained by the Restaurant Resource Group. Again, familiarizing yourself with your state’s particular laws and standards is a fantastic way to protect against any potential problems.

Eliminate altogether

With all of the complications and uncertainties that come along with tipping, some restaurants are moving away from the practice altogether. According to the Washington Post, by eliminating tips, all restaurant staff receive a set amount of pay, the waitstaff is not as motivated to turn tables quickly, and servers don’t have to rely on sometimes-fickle diners for their income.

On the other side, as the article further explained, good servers may ultimately make less money, and the restaurant’s prices may seem high to customers who do not consider the impact of tips on their total bill. In addition, as explained in Kiplinger, employers would need to revamp their payroll to accommodate the servers’ increased wages and all of the tax withholdings that accompany more stable wages.

Although tips seem like a nice gesture, a bit of extra cash bestowed on hard working servers by appreciative customers, the realities of managing tips can get difficult quickly. Servers have to make enough income, managers have to carefully record and report all gratuity, and diners are expected to show their appreciation for servers with an ever-changing amount of money for each dish served.

With all of this in mind, it’s no surprise some restaurants are doing away with the practice altogether. Whether your place decides to pool tips, drop them, or let servers continue to compete for higher earnings, one fact remains: showing your gratitude for a job well done will never go out of style.

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