Restaurant Tip-Out Guide: Tip Pooling, Tip Sharing & Tip-Out Structures Explained

In the restaurant industry, how you handle employee tips can make or break team morale. Servers may collect the most visible rewards, but every staff member, from bartenders to food runners and back-of-house employees, plays a role in delivering exceptional guest experiences. That’s why a clear, fair, and legally compliant restaurant tip-out structure is essential.

This guide breaks down everything restaurant owners need to know about tip outs: how they work, different models like tip pooling and tip sharing, how to set up your own system, and best practices to ensure fairness and compliance.

What Is a Tip Out?

A tip out is when tipped employees (like servers or bartenders) share a portion of their tips with other staff members who help provide service but may not directly receive tips. Tip outs typically include roles such as bussers, food runners, kitchen staff, and barbacks.

This practice is essential for creating a balanced, fair compensation system across your team. It ensures that everyone who contributes to the guest experience gets recognized and rewarded.

Why Are Tip Outs Important?

A well-structured tip-out system offers several advantages:

• Promotes teamwork and fairness
  Sharing tips among staff reinforces that good service is a collective effort, not just a front-of-house achievement.
• Increases employee satisfaction and retention
  When back-of-house staff and support staff feel recognized through fair tip sharing, morale improves, and turnover decreases.
• Reduces conflict and confusion
  A clearly documented tip-out policy prevents disputes over who should receive tips and how they’re distributed.

The History of Tipping in Restaurants

The practice of tipping began in 17th-century Europe and became popular in the U.S. post-Civil War. Over time, the restaurant business model evolved to rely heavily on tips to compensate service staff. Today, managing employee tips responsibly is not just an operational decision; it’s a legal one.

Common Tip-Out Methods in the Restaurant Industry

There’s no one-size-fits-all tip-out model. The right method depends on your restaurant type, service style, and staffing setup. Below are common methods:

1. Percentage of Tips

Servers tip out a fixed percentage of their total tips to other roles. For example:

• 15% to bussers
• 10% to food runners
• 5% to barbacks

This tip-out model is easy to calculate and widely used in full-service restaurants.

2. Percentage of Sales

Here, tip outs are based on a percentage of the server’s total sales. Example:

• Server sells $1,000 worth of food
• Tips out 1.5% to kitchen staff and 1% to bussers

This approach ties the tip out to revenue rather than total tips received.

3. Tip Pooling

All tips (cash tips and credit card tips) are pooled together and redistributed according to a predetermined formula, often based on hours worked or a points system. Tip pooling is common in restaurants that promote shared responsibility across the team.

⚠️ Tip pooling laws vary by state. Check local laws to ensure compliance, especially if using a tip credit.

4. Tip Sharing

Similar to tip pooling, but typically limited to a specific group (e.g., front of house or kitchen crew). Tip sharing encourages collaboration within departments and helps distribute tips more evenly.

5. Event-Based Tip Splitting

Used for catering or large parties. All tips collected at the event are split among the team members who worked that shift.

6. Total Hours Worked

Tips are distributed based on hours worked per shift. If Sarah works 10 hours and Andrew works 8, Sarah receives a larger portion of the tips collected.

7. Points-Based Tip Pooling

Each position is assigned a point value. Example:

• Server = 5 points/hour
• Bartender = 4 points/hour
• Busser = 3 points/hour

The total tip pool is then divided by points earned to distribute tips fairly.

8. Hybrid Tip Out Structure

Some restaurants combine multiple tip-out models. For example, using a mix of points-based distribution and percentage of sales for a more customized, fair tip distribution.

What Should Be in Your Restaurant Tip Out Policy?

A good tip-out policy should include:

• Who participates in the tip out (e.g., tipped employees only, or include back of house staff)?
• How tips are calculated (percentage of sales, percentage of tips, etc.)
• Tip out percentages or point values for each role
• When and how tips are distributed (daily, weekly, via payroll)
• How credit card tips and service charges are handled
• Compliance with tip pooling laws and tip credit rules

Be sure to display your policy clearly and train all staff members on it. Regularly update it based on staff feedback and legal changes.

Tip Outs and Legal Compliance

Federal Regulations

Under the Fair Labor Standards Act (FLSA):

• Tip pooling is allowed, but the rules vary depending on whether the employer takes a tip credit.
• If the employer takes a tip credit (i.e., pays tipped employees less than the federal minimum wage and uses tips to make up the difference), only employees who customarily and regularly receive tips, such as servers, bartenders, and bussers, can be included in a mandatory tip pool.
• Back of house employees (e.g., cooks, dishwashers) cannot be included in a mandatory tip pool if a tip credit is taken.
• If the employer does not take a tip credit and pays the full minimum wage, tip pooling can include back of house workers, as long as management or supervisors are not part of the pool.

⚠️ Managers and supervisors may never participate in tip pools under the FLSA, regardless of tip credit status.

State & Local Laws

Tip pooling laws also vary by state:

• California: Tip credits are not permitted. All tipped employees must receive the full state minimum wage. However, mandatory tip pooling is allowed, and tips can be shared with back-of-house employees, but not with managers.
• New York: Tip pooling is allowed with restrictions. Employers taking a tip credit must ensure only employees who directly interact with customers (e.g., servers, hosts) participate in the pool. Back-of-house workers can only be included if the employer pays full minimum wage.

Pros and Cons of Tip Outs

✅ Pros of Tip-Outs

1. Encourages a team-first culture
   Tip outs reward support staff like bussers, food runners, and barbacks who contribute to the guest experience but don’t interact directly with customers. Sharing tips fosters collaboration and reduces the “every server for themselves” mindset, especially in high-volume or fine-dining environments.
2. Improves staff morale and perceived fairness
   When tips are distributed fairly among front and back-of-house contributors, it can help eliminate resentment and make all employees feel recognized for their efforts. This is especially valuable in restaurants where teamwork is essential to smooth service.
3. Helps with employee retention
   Tipped employees often stay longer when they feel the system is fair and transparent. Tip outs can supplement lower-wage roles and make positions like food runners or bussers more financially viable, reducing turnover in high-churn roles.
4. Promotes better customer service
   When support staff benefit financially from great service, they’re more motivated to move with urgency, communicate effectively with servers, and help resolve guest needs proactively, all of which improve the guest experience.

❌ Cons of Tip-Outs

1. Can create tension if not clearly structured
   Tip sharing becomes a source of conflict when there’s no transparency or consistency in how it’s calculated or distributed. If one role feels overcompensated while another feels shortchanged, it can erode trust between staff and management.
2. May lead to unpredictable income for tipped employees
   Servers rely on tips for the majority of their income. If too much is redistributed, or if tip-out percentages vary day-to-day, it can result in uneven earnings, making it hard for employees to budget or plan their finances.
3. Improper handling can violate wage laws or payroll compliance
   Mishandling tip pools, such as including managers, deducting tips for non-service reasons, or failing to meet minimum wage requirements after tip outs, can trigger wage and hour violations, penalties, and lawsuits. Tip handling must comply with FLSA regulations and state-specific labor laws.

Best Practices for Managing Tip Outs

Creating a fair and sustainable tip out system requires more than just assigning percentages. These best practices ensure your structure remains consistent, compliant, and team-friendly.

✅ Use a Restaurant Tip Out Chart

A clear restaurant tip out chart breaks down who receives tips, how much, and why. Whether you’re using percentage-based tip outs or a points-based tip out model, visualizing tip distribution fosters transparency and eliminates confusion. Display it in break rooms, include it in onboarding materials, or attach it to digital schedules to keep everyone on the same page.

Tip out charts are especially useful when restaurants split tips across multiple roles, as they show employees their position in the overall tip out structure. This helps set expectations and prevent disputes over tip out percentages.

✅ Automate with Your POS System

Manual calculations for credit card tips, cash tips, or service charges can lead to inconsistencies and payroll errors. Modern POS systems offer tip management features that allow you to:

• Set custom percentage-based tip outs by role
• Automatically calculate and distribute tips received by each employee
• Track total tips, by shift or day
• Integrate tips with payroll and help pay payroll taxes properly

Automation also simplifies adjustments when staffing changes mid-shift, or when applying different tip pooling structures during events or service variations.

✅ Keep Accurate Records

Comprehensive record keeping is essential to avoid compliance issues and payroll disputes. Maintain detailed logs of:

• Tips collected (both credit card and cash tips)
• Tip outs per staff member and shift
• Any tip jar contributions or event-specific pooled tips
• Time-stamped documentation for hours worked and tip out percentages

These records can also serve as proof of compliance with tip pooling laws and minimum wage obligations in case of audits or labor claims.

✅ Educate Your Staff

Don’t assume your team understands the nuances of tip sharing versus tip splitting or tip pooling. As part of your onboarding and ongoing training, clearly explain:

• How tips are distributed
• Who participates in the tip out arrangement
• What each role’s share looks like based on your restaurant tip out chart
• Why your system aligns with your restaurant’s values and service style

Regular team discussions and posted reminders help reinforce the policy, especially in high-churn environments.

✅ Stay Legally Compliant

Federal rules under the Fair Labor Standards Act (FLSA) and your state’s local laws determine what’s allowed regarding tip credits, tipped employees, and back of house staff participation. Stay updated on changes to:

• Tip pooling laws (especially if using a tip credit)
• Rules for including back of house employees like dishwashers or cooks
• State-specific policies on minimum wage and tipped minimum wage
• Prohibitions against including managers or supervisors in tip sharing

Consult legal experts when in doubt and revise your tip out policy regularly to stay in compliance.

Example Restaurant Tip Out Chart

Creating a clear breakdown of tip distribution by role not only improves transparency but also ensures smoother shift transitions and consistent application of your tip out system. Here’s an example:

Pro Tip: Adjust your tip out chart based on your restaurant’s unique service model, whether it’s fine dining, casual dining, a coffee shop, or a brewery. Be sure to also account for local regulations before including back of house workers in your distribution.

This type of chart can be displayed digitally in your POS system or printed in staff areas. Use it during team meetings to reinforce how the total tip pool is divided, especially if your restaurant collects pooled tips or operates on a hybrid tip out structure.

Factors to Consider When Creating Your Tip-Out Method

A successful tip out structure is never one-size-fits-all. To build a model that’s fair, sustainable, and legally compliant, you’ll need to consider several key factors specific to your restaurant operations, service model, and staff dynamics.

1. Align Tip-Outs with Your Service Model

Your restaurant’s service style directly affects how tips are earned, and how they should be distributed. Below are some common restaurant types and corresponding tip-out considerations:

• Full-Service Restaurants
  Servers, bartenders, bussers, runners, and kitchen staff all contribute to the guest experience. A typical tip out model here might allocate a percentage of tips or sales from servers to bussers and bar staff, with optional inclusion of the back of house where legal.
• Quick Service Restaurants (QSRs)
  With fewer table-touch points, tips may be collected at the counter and split among cashiers, support staff, and kitchen team members via pooled tips.
• Casual Dining
  These restaurants often blend QSR and full-service elements. Tip sharing models work well here, allowing partial tip outs to other employees like runners or bartenders, while still letting servers retain a larger portion.
• Fine Dining
  In upscale establishments with higher tips earned, a tiered tip out system is often used. Tip out percentages may vary based on role, with more going to sommeliers or captains and a smaller share to kitchen staff.
• Cafes and Coffee Shops
  These environments may use a tip jar system or pool all tips and divide them equally among baristas, cooks, and service staff, encouraging a collective team mentality.
• Breweries and Taprooms
  Since bartenders typically handle both drink prep and customer service, they often receive a higher share of collected tips, while servers or runners may receive a smaller cut based on their contribution.

2. Understand Local Laws and Tip Pooling Regulations

Your tip out policy must comply with both federal rules and local laws governing tip pooling, tip sharing, and use of the tip credit.

• In the U.S., employers who use a tip credit to pay below the federal or state minimum wage cannot include back of house workers in a mandatory tip pool.
• In California, tip credits are not allowed, but tip pooling is legal, managers can’t participate, and all staff must earn at least the full state minimum wage.
• In New York, the law allows for tip pooling structures with restrictions. Tip sharing must be limited to those who “customarily and regularly receive tips.”
• In Australia, tip pooling must be voluntary, and management participation is generally prohibited.
• In Singapore, there are no formal tip pooling laws, but all employees must receive the full minimum wage, and tip distribution is left to the employer’s discretion.

Always consult a labor attorney or local labor board to ensure your tip out arrangement adheres to the latest legislation.

3. Involve Your Employees in the Process

One of the most overlooked, but essential, factors in tip policy success is employee input.

• Involving your staff in decisions around tip out percentages, distribution methods, or tip pooling participation increases buy-in and trust.
• Ask for feedback from both tipped employees and support staff to identify gaps in fairness. For example, if your servers feel the kitchen staff are under-recognized, consider adjusting your tip sharing strategy to reflect that contribution.

You’ll foster a culture of openness, and reduce the risk of resentment or turnover.

Beyond Tip Outs: Streamline Restaurant Operations with KNOW

A fair tip-out system is essential, but it’s only one part of building a high-performing restaurant team. Daily success depends on how well your staff communicates, executes tasks, follows SOPs, and adapts to operational demands. That’s where KNOW makes a measurable difference.

KNOW is a mobile-first platform built specifically for restaurant operations. It helps managers and frontline staff stay aligned, informed, and accountable, without relying on paper logbooks, WhatsApp messages, or fragmented tools.

With KNOW, you can:

• Digitally share tip-out policies, shift instructions, and SOPs, accessible anytime
• Assign and track daily checklists, from prep to closing
• Train new hires with bite-sized, mobile-ready onboarding journeys
• Schedule staff shifts, manage attendance, and reduce no-shows
• Resolve issues faster with photo/video-based reporting and real-time updates
• Communicate updates instantly across locations or teams

KNOW is lightweight (just 10MB), works offline, and is trusted by over 1 million users, including some of the world’s leading restaurant brands.

If your team is still juggling operations through spreadsheets, group chats, or word-of-mouth, it’s time for a change.

See how KNOW helps restaurants run smoother, from front of house to back of house.

Final Thoughts: Build Fairness, Drive Consistency, and Set the Standard

Tip outs are more than a payroll detail, they reflect your restaurant’s culture. A transparent, legally compliant, and team-oriented tip out structure improves morale, supports retention, and ensures everyone gets recognized for the service they help deliver.

But don’t stop there.

Restaurants that run smoothly have more than just fair compensation, they have systems that keep every shift on track, every employee informed, and every task accounted for.

The stronger your operational foundation, the more your tip policies, and your people can thrive.

If you’re ready to elevate how your team works, communicates, and performs, KNOW is ready to help.

Frequently Asked Questions (FAQs)

1. What does “tip out” mean in a restaurant?

A tip out refers to the practice where tipped employees, usually servers, share a portion of their employee tips with other staff members who contribute to the dining experience but don’t receive tips directly. This includes roles like bussers, food runners, and barbacks. A well-defined tip out structure helps ensure fairness and reduces disputes among staff.

2. What is the normal tip-out percentage at a restaurant?

While it varies by establishment and service model, most restaurant owners use a tip-out percentage ranging from 3% to 5% of a server’s total sales. However, in some cases, percentage-based tip outs may go higher depending on the role and responsibilities of other employees, especially in full-service or fine dining environments.

3. How do you calculate a tip out?

Tip-outs can be calculated in several ways depending on your chosen tip management method. Common formulas include:

• A percentage of total sales (e.g., 3% of sales to bussers)
• A percentage of total tips received
• A points system, where different roles are assigned point values and tips are distributed accordingly
  The key is to maintain consistency, clarity, and compliance with wage and hour laws when calculating and applying the tip out structure.

4. What’s the difference between a tip out and a tip pool?

• A tip out involves a server giving a portion of their tips to specific employees (like bussers or bartenders) based on a preset arrangement.
• A tip pool combines all tips received by eligible staff into one shared pool, which is then redistributed based on a defined formula, such as hours worked or role-based weighting.

Both methods aim to ensure fairness but differ in structure. Tip pooling is often more team-based, while tip outs can be role-specific.

5. What is tip splitting?

Tip splitting is a more informal term that usually refers to dividing tips between two or more employees after a shared service. For example, two servers covering a large party might split tips 50/50. Unlike tip pooling, which involves a shared pool across shifts or roles, tip splitting tends to be situational and mutually agreed upon.

6. Are restaurants required to pay payroll taxes on tips?

Yes. Restaurant owners are legally required to pay payroll taxes on all employee tips, including credit card tips and cash tips. Tips are considered taxable income and must be reported accurately. Failing to do so can result in significant IRS penalties and labor law violations.

7. Can you include kitchen staff in a tip-out?

That depends on whether the restaurant is taking a tip credit. Under federal law, if you’re using a tip credit (paying tipped employees less than the federal minimum wage and using tips to bridge the gap), then back of house employees like cooks or dishwashers generally cannot be included in mandatory tip pools. However, if all employees are paid at least the full minimum wage, you may be allowed to include back of house staff, depending on state and local laws.

8. Are service charges the same as tips?

No. Service charges (such as automatic gratuities for large parties or catering fees) are not considered employee tips under the IRS definition. They are treated as restaurant revenue and must be processed through payroll if distributed to staff. Be sure to clearly distinguish service charges from tips on receipts and reports.

9. How do restaurants pay out credit card tips?

Most restaurants distribute credit card tips through payroll. These are included in the employee’s paycheck and taxed accordingly. Some employers may offer daily or weekly cash distributions to supplement wages, but the tips must still be recorded and reported. Modern tip management systems can automate this process to ensure accuracy and compliance.

10. Is tip pooling worth it?

When implemented correctly, tip pooling can be highly effective. It fosters a team-oriented environment, helps recognize the contributions of other employees, and creates a more consistent compensation model for support staff. However, it requires a well-documented tip out structure, legal compliance, and strong communication to avoid confusion or resentment.