Guide to Restaurant Employee Tip-Outs: Tip Pooling, Tip Sharing & Tip-Out Methods

As a restaurant owner or manager, you’re responsible for ensuring that your team is tipped out appropriately. But what exactly does that involve? And which tip-out method is best for your establishment? In this post, we’ll explain everything you need to know about tip pooling, tip sharing, and tip-outs. We’ll also share suggestions for implementing your chosen method and discuss how to handle any potential challenges.

So whether you’re just starting or are looking to make a change to your existing restaurant tip-out structure, read on for the ultimate guide to restaurant tip-outs.

What Is Tip-Out In A Restaurant?

A tip-out, in the simplest terms, is money that restaurant employees give to their managers. It’s a way to show appreciation for all the hard work they do and to help keep the restaurant running smoothly.

There are a few ways to structure tip-outs, but the most common is tip pooling and tip sharing. 

Let’s take a look at each of them.

How Does Tip-Out Works

A tip-out is when a portion of an employee’s tips are shared with other employees. Tip-outs can happen in various ways, but the most common method is for a server to share a percentage of their tips with the kitchen staff at the end of their shift.

The decision of how to do a tip-out is usually left up to the individual restaurant. Still, many establishments have started to implement mandatory tip-out to ensure that everyone is fairly compensated.

Whichever method is chosen, it’s important to ensure that all employees are aware of the tip-out policy before their shift begins. This will help to avoid any confusion or hard feelings later on.

Factors to Consider While Creating Your Tip-Out Structure

If you’re considering implementing a tip-out structure, there are a few factors you’ll need to take into account.

Provincial Laws

Laws at the federal level offer broad guidelines; however, local, provincial, and municipal ordinances differ area by area and country by country. 

For starters, you’ll need to take into account your local laws. In the United States, tips are considered the property of the employee, so any money you collect from tips goes into their pool. In Australia, on the other hand, tips are considered the business’s property, so any money left on the table goes into the business’s coffers.

Laws of some countries pertain to restaurants to tip-out employees anyway, regardless of their sales – or some support employers and let them tip out employees based on sales. The exemplary data of the U.S. and Canada is as follows:

• Canadian provincial minimum wage laws – $13.00 to $16.00
• U.S. state minimum wage laws – $7.00 to $16.00 (However, some cities’ U.S. laws allow employers to tip-out employees for as low as $2, $5, and $6) 

If your employees are not earning minimum state wage due to the tipping-out structure, you can be penalized by authorities.

To comply with this rule, the best one can do is if a tipped worker’s total earnings don’t bring them up to the state minimum wage – the business should make up the difference in cash payments under most circumstances.

Example: In British Columbia, for instance, the state minimum wage is $15.65 per hour, but the tipped minimum wage is $10. To meet the state minimum wage in British Columbia, a server working an eight-hour shift must earn at least $125.2 ($15.65 x 8 hours) in tips. 

If a server works for an establishment at an 8-hour shift and earns only $80 after all tip-outs or payouts combined, the establishment must compensate the server the remaining $45.

Restaurant & Staff Category

Different types of restaurants have different customs for sharing tips. For example, If you own a bar that doesn’t sell food but relies on servers to accept orders and bring customers their drinks, the bartenders should get a larger share of the tips than the servers. 

Just check provincial laws for your restaurant category beforehand to make a plan more precisely. 

Tipped Wage System

If servers were paid a living wage, they might not be as motivated to provide excellent service, which is why many argue that the tipped wage system should be kept in place. This can be said as fair but not good enough. 

While the pros and cons of having servers receive tips are debatable, if you decide to implement a tipping structure, it’s important to establish a fair restaurant tip-out policy that motivates your servers to do their best work.

Choosing the Best Payout Method for Your Restaurant

When tipping out your staff, you have a few payout methods: tip pooling, tip sharing, or tip-outs. So, which one is best for your restaurant?

Well, that depends on a few factors, such as the size of your staff and the type of restaurant you have. Whichever method you choose, make sure you set up and enforce a strict tipping policy so that everyone is clear on the expectations.

Tipping Out  VS Tip Pooling VS Tip Sharing

1. Tipping out

   Tipping out means that each employee gets a tip individually. This is the more traditional option, and it’s usually the easiest to implement. But it can be more costly for your business since you’re paying out more tips overall.

2. Tip pooling

   Tip pooling is when all tips are put into a single pot and then distributed evenly among employees. This can be a good option if you have a lot of low-paid employees who rely on tips to make up a significant portion of their income.

   Example: Collectively, your staff of 3 people raked in $100.

   Regardless of how many hours an employee has worked, you will divide and distribute tips evenly between the three. 

   $100\3

   To calculate how much tip each worker deserves, divide $100 by 20 to get the number 5.

   • • Server #1 will get $33.3
     • Server #2 will get $33.3
     • Server #3 will get $33.3

3. Tip sharing

It is when tips are distributed among employees based on their level of service or how much they contributed to the overall dining experience. This can be a good option for higher-paid employees who don’t expect to rely on tips as their main source of income. 

A similar example like tip-pooling is given below to highlight the difference more effectively. 

Example: Collectively, your staff raked in $100.

• • First-shift server #1 put in a whole eight hours.
  • At the same time, server #2 put in a whole five hours.
  • The third server worked a full 7 hours.
  • It was a total of 20 hours of work.

To calculate how much tip each worker deserves, divide $100 by 20 to get the number 5.

• • Server #1, $5 x 8 = $40
  • Server #2, $5 x 5 = $25
  • Server #3, $5 x 7 = $35 

Ultimately, the best tip-out structure for your restaurant depends on your circumstances. But, whichever method you choose, ensure you communicate your expectations to your employees clearly and implement them consistently.

Tip splitting and tip pooling laws in USA, Australia, and Singapore

So you’re ready to implement a tip-out structure in your restaurant. That’s great! But before you get started, it’s important to understand the laws surrounding tip splitting and tip pooling in your area.

In the United States, for example, there are strict laws surrounding tip pooling. Employees must be able to participate in a tip pooling arrangement voluntarily, and the pool can only include employees who customarily and regularly receive tips.

Australia has similar laws surrounding tip pooling. Employees must be able to participate voluntarily, and the pool can only include employees who earn tips as part of their regular work duties.

Singapore is a little different. There aren’t any laws specifically regulating tip splitting or tip pooling, but employers should remember that employees are entitled to a minimum wage, which must be paid in full even if the employee doesn’t receive any tips.

So before you implement your restaurant’s tip-out structure, ensure you understand the relevant laws in your area. That way, you can be sure that your employees are treated fairly and that your business operates within the bounds of the law.

The bottom line

Whatever option you choose, make sure your restaurant employees are aware of the rules and know what to expect when it comes to tips. This will help keep things running smoothly in your restaurant and avoid confusion or conflict over tips.