The Ultimate Guide to Tipping Out

As a restaurant owner, choosing a tipping out structure that makes everyone happy can feel like a tall order—and we're not talking about coffee sizes. With the debate around whether tipping incentivizes low wages in the industry, structuring your tips can feel complicated. Luckily, with a good understanding of server tip out laws, strong team communication, and the right tools, you can avoid a headache.No matter what kind of restaurant and team you run, we're here to help you build and communicate a gratuity structure that works for everybody.

What does it mean to tip out?

Tipping out at a restaurant is a process where the payment-processing staff (e.g servers, wait staff, bartenders) distribute a percentage of the tips they collect to certain coworkers.In a tip-out arrangement, certain team members collect cash or credit bonuses from customers and then distribute them to supporting team members. People who get 'tipped out' typically include:

• bartenders who make the drinks (common for restaurants where bartenders are mostly making drinks for those at tables vs. the bar)
• bussers who clear and reset the tables
• food runners who run out the food
• hosts who greet and seat guests
• under some area’s labor laws, the kitchen staff

Servers sometimes choose how much to distribute, but more often than not, the restaurant has—or should have—a clear policy set in place.

What is the difference between tip out and tip pool?

While both options involve sharing amounts among restaurant workers, the two arrangements work differently. A tip out involves direct transfers of money from one worker to another, whereas a tip pool collects the funds into a common fund, which is then redistributed.

Tipping out

Tipping out means that your servers and bartenders will collect gratuities from customers, then at the end of their shift, will give a percentage to the hosts, bussers, food runners, kitchen staff, and anyone else who supported them that night.This choice can be perceived as more fair. The servers who were given the tip by the customers and provided face-to-face service are still incentivized to provide top-notch service, since the amount is directly tied to how great their service is. 

Tipping out can also build a sense of camaraderie between your team members, creating an incentive for them to support each other. When you have people directly recognizing and compensating the specific teammates who helped them during a given shift, it can even help foster a sense of appreciation and teamwork. So when a server rushes into the kitchen saying they totally forgot to mark that steak as medium rare instead of just rare, the kitchen team may be a little more understanding in order to help the server generate a larger amount.

Tip pooling

On the other hand, tip pooling can sometimes be seen as redistributing cash from people who earned them to people who may not be pulling their weight; it means that every single person adds their extra amounts together and then that amount is redistributed to everyone. Let's say you're a server with a ton of experience and excellent at providing above-and-beyond service, and you consistently manage to bring in high amounts of extra cash from customers. You're not going to be too impressed if someone else on the team is being rude to tables, not running dishes quickly, and regularly forgetting to upsell dessert—and then walking away with some of your hard-earned cash. For that reason, pooling can be more complicated than tipping out. It’s also important to know that some states prohibit tip pooling. 

How much should you tip out? Restaurant percentages explained.

There are a few different ways to format tip outs at your restaurant. Let’s go through three methods and how they work.

1. Percentage of tips

The most formal option—and usually the one that supports high team morale—is percentage-based tip outs. Under this option, supporting service roles like kitchen staff and bussers are tipped out based on an assigned percentage no matter how much cash a server brought in. Server tip out percentage is usually between 20% to 45% of a server’s total collected gratuities. This can be a popular system where everyone is encouraged to work together in order to score the highest amount. For example, a bartender may remake a drink that a customer sent back, or a runner may bring the food extra quickly, all for mutual benefit. Example A server collects $100 in tips. They give out:

• $10 (10%) to the bartender 
• $7 (7%) to the busser 
• $5 (5%) to the runner 
• $3 (3%) to the host 
• They keep what remains—$75

2. Percentage of sales

Restaurant tip out percentage based on overall sales is another popular approach that provides a clearer paper trail.Hiding or underreporting tips is an unfortunate reality for any industry where team members are getting paid in cash and the overall amount isn't clear. When you're using a system with a percentage of sales, that's a lot harder to do, since the sales total for the shift is shown right on a server’s end-of-shift report. This system relies more on the work of the server for the entire team's tips. While a busser may be inclined to clear a table more quickly so another customer can be seated, a kitchen employee doesn't really have an incentive to remake a dish someone sent back, since they'll pay the same price either way. ExampleA server sells $100 in drinks and $400 in food, plus earns $100 in gratuities. They tip out:

• $10 (10% of the $100 drink sales) to the bartender 
• $15 (3% of the $500 food and drink sales) to the busser 
• $13 (3% of the $400 food sales) to the runner
• $5 (1% of the $500 food and drink sales) to the host
• They keep what remains—$57

3. Points system 

A points-based system distributes tips to support workers based on their level of responsibility. Every support worker is assigned a specific point value depending on the labor they perform each shift. Bartenders might earn 1 point per drink made, bussers might earn 1 point per table they service, runners might earn 1 point per food order delivered, and hosts might earn 0.5 points per table they seat. You get the idea. Their amount at the end is calculated by dividing the total gratuities earned by the total points accumulated. The points system can be an effective way to tip out 20-100%—but in addition to being pretty complicated, it can run into tip pooling territory on the higher end. ExampleA server collects $100 in gratuities and received support from the following restaurant team members:

• The bartender made 20 drinks x 1 point = 20 points
• The busser serviced 4 tables x 1 point = 4 points
• The runner delivered 10 food orders x 1 point = 10 points
• The host seated 6 tables x 0.5 points = 3 points

Total points accumulated were:20 points (bartender) + 4 points (busser) + 10 points (runner) + 3 points (host) = 37 pointsThe value of each point—the total tip money being shared, divided by the total points accumulated—was $25 divided by 37 points, or $0.68 per pointThe server shares:

• $13.60 (20 points x $0.68 per point) to the bartender 
• $2.40 (4 points x $0.68 per point) to the busser 
• $6.80 (10 points x $0.68 per point) to the runner 
• $2.04 (3 points x $0.68 per point) to the host 
• They keep what remains—$75.16

Staff included in gratuity-sharing.

We've gone over the different types of tip sharing—now let’s take a look at who gets tipped out. We'll keep using the example of a full service restaurant. First and foremost, tips should go to your frontline service workers: your servers and bartenders. After all, tips are compensation for their central role in making the guest experience what it is. After that, it's up to the specific restaurant which other team members it recognizes as frontline faces of the guest experience.

Do hosts get tips?

Sometimes. Usually hosts receive about 3%, but this can range depending on their experience, seniority, and job requirements.There's a lot of range in hosting duties. At the base, this could mean a host greeting customers and welcoming them to the restaurant, and having them seat themselves. At a much higher level, hosts may take and store coats and umbrellas, or act as a concierge. No matter the type of restaurant, hosts are usually responsible for deciding where guests will sit. Often this is a complicated game of making sure no server has an empty section, while also making sure one server doesn't get three tables sat at the same time.

Do chefs get tips?

If chefs and other kitchen workers are included, they might be tipped out 3–8% of food sales. In the past, back-of-house workers weren't legally allowed to be included in tip sharing. But in 2018, the Department of Labor and the Fair Labor Standards Act (FSLA) amended the rules.Cooks, dishwashers, and other back-of-house workers are included if:

• You're paying all of your team members the full minimum wage
• You aren’t claiming a “tip credit” for any of your team members

Sharing tips with kitchen workers helps bridge the wage gap between your front-of-house and back-of-house team. It can lead to better kitchen staff retention and better compensate people working busier shifts. Read more about building a sustainable BOH culture.

Do food runners and bussers get tips?

Yes, food runners usually get tips. Food runners are responsible for bringing customers their food, and bussers are responsible for clearing the tables so new customers can quickly be seated. Most restaurants recognize the customer experience efforts of food runners and include them with about 5% of the collected tip. If there’s no food runner and the bussers run food, then bussers might be tipped 10%.

Do barbacks and bartenders get tips?

Yes, bartenders (and usually barbacks) receive tip outs. Since customer service is part of their role, barbacks get a portion of the bartender’s tips. The barback percentage is usually either 1–3% of total drink sales or 10–20% of total tips.Tip-out percentages vary per position, depending on each role’s level of responsibility and service style, and in different kinds of restaurants. Fast service restaurants or cafes, for instance, tend to follow different structures.

What are server tip out laws?

Even though you might want to go a certain direction when it comes to tipping out, it's important to start by looking at the federal and local server tip out laws in your area. A few considerations:

Can a restaurant require servers to tip out other team members?

That’s a big one. And yes, it's perfectly legal for you to require your servers to tip out other restaurant workers, so long as:

• servers receive at least the minimum wage after accounting for tips
• the tipped workers retain all tips that they receive

Workers can only work on certain tasks if you're taking a tip credit.

You can only take a tip credit from an employee’s wages for the hours spent on tip-producing work with customers, or work that directly supports tip-producing activities, like refilling condiment bottles, setting tables, preparing food, cleaning, etc.Confused about tip credits? Read more about how to handle the ins and outs of tip credits.

Managers should only keep a tip under very specific circumstances.

As a rule, you as an owner or manager shouldn't be keeping any tips or portions of tips. The only exception is if you're receiving that tip for a service you and only you “solely” provided.This means that if you're the only one who helped the customer, or you're working the floor as a server during a busy period when someone did a no-call no-show, you can keep whatever you collected. Of course, as a server in this situation, you'd also contribute to a tip-sharing arrangement. And keep in mind your employees may expect you to pony up a little extra cash given you're probably earning a higher salary than they are.

Find out who covers credit card processing fees in your state.

Plenty of your customers will tip when they pay using a credit card. And as you probably already know, that means your provider will charge your restaurant a 3%–4% processing fee. And when you're not even pocketing the tip, yet you're paying the fee for it, it can be a tough pill to swallow.Some states do let restaurant owners retain this amount from employee tips. If it's something you want to do, you'll need to find out which state guidelines apply to your business. A word of caution: taking tip money from your staff to pay for your business fees likely won't sit very well with your team. Our advice? Tread lightly.

Be aware of the penalties for violations.

Tips aren't just a 'nice to have' part of doing business. They come with enforceable rules, and if you're in violation of those rules—like withholding tips or requiring workers to tip out when they don't have to—you could face a fine of up to $1,100 each time. Yes; even if you're not doing it on purpose.You could also face legal consequences, like having to repay employees for those tips. And if employees really feel like they've been wronged, they could even look into serving you with a lawsuit. Even if a complaint doesn’t escalate to that point, it can still cost you money, like spurring an investigation into your payroll records.

Best practices for managing gratuities.

Now you've read and re-read the rules on tipping out. Next up? Creating a written policy that clearly outlines your legally sound and well-organized policy. To ensure fairness and transparency, you'll want to go over guidelines for both servers and management, so everyone's on the same page. Once you've got that beautifully clear policy, it's time to share it with with your team. Luckily, an app like Homebase makes this really simple, so you can rest easy knowing everyone has seen and signed off on the policy. You can even make sure it's part of every new employee's onboarding.By establishing and communicating a clear process for exactly how tips are divided, you minimize any potential for conflict, keep team happiness high, and benefit from higher worker retention.Advice: whether you’re onboarding someone new or making a change to your tip out policy, always follow up with your team members to gather feedback and see how the tip out structure is working for them.

Homebase makes managing extra payments easier.

Tip outs have been a part of the restaurant business model for generations, and for good reason. When done right, it motivates great service and compensates all kinds of restaurant workers more fairly. But with all that extra cash floating around and everyone wanting a piece, it can add stress and miscommunication.Today’s restaurant owners and managers no longer have to worry about all the complexities that come with tipping.

With Homebase, it’s easier to track employee tips—and make tax season more manageable—with modern tools.Homebase simplifies tip tracking, automating your processes and syncing them to payroll. With a free Homebase account, you can manage time tracking and scheduling for up to 20 hourly employees. And with features for payroll, HR, and compliance, Homebase is an all-in-one app designed to keep your costs in check, your team operations smooth, and your business growing and thriving.

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