Overview of How a Pooled Tip System Works, How to Set One Up, and Why It’s a Favorable Option In Your Restaurant
The restaurant industry in the US has had a long and conflicting relationship with tips. On the one hand, tipping is tied to a dark time in our history and still creates significant wage disparities between the front and back of the house. On the other hand, it’s predominantly accepted, expected, and depended on in the US.
No matter how we all feel on the subject, the act and culture of tipping are unlikely to change any time soon.
That’s why pooled tips have become more normalized and widely accepted forms of tip distribution in our industry.
If you’re looking for a way to manage tipped income (more) equitably, this article is for you.
Kirk Grogan, Chief of Operations at TipHaus—a worker-first, automated tip-distributing software—gave us the details on pooled tips and covered everything you’d ever need or want to know!
What is a Tip Pooling System?
When an establishment pools tips, they collect all gratuities earned, which are then redistributed back to the employees following a fair and partial tip rule set up by management.
“An extremely simple tip pool might look like a coffee shop with four baristas working throughout the day,” Grogan explained. “All tips from all baristas are added into the pool and then distributed back to the baristas based on the number of hours they worked.”
There are countless ways a manager can set up their tip redistribution policy, and employers should follow whatever feels the fairest and most beneficial to their team.
Grogan shared that the variations typically fall under the categories of
- Who participates in the pooled tips
- How long the pool accumulates before being distributed
- The ratio value of employees in the pool
What Are The Benefits of Pooled Tips?
Both workers and employers benefit from a pooled tip system. Grogan shared that the list was too long to mention all the benefits, but some of the main ones include:
- Encouraging far better teamwork
- Influencing a better guest experience
- More income consistency for staff
- Significant savings in staffing overhead
- Far more equitable pay for the critical staff of a restaurant
Additionally, workers prefer pooled tips over keeping what they earn, mainly because pooling can create more income security, which is extremely important in an industry with varying seasonality.
It also encourages a shift in mindset when on the job. If it’s slow, workers are not discouraged and are still motivated to work by contributing to the whole in other ways, like doing extra side work. Their time is valuable, and pooling tips can raise morale.
“The trick is implementing it in a way that truly does allow your best employees to realize more financial gains and to make this process AS TRANSPARENT as possible,” Grogan explained. “When moving money between employees, it’s critical to pull back the curtain and give a complete picture. Transparency and trust are important in a restaurant and account for ¼ of the turnover in the industry.”
With TipHaus, employers can provide transparency through their free employee mobile app. The app itemizes all tip earnings and pools, so employees can see where the money is going and why—but employers can create this transparency through a spreadsheet or verbally.
How Do I Begin To Set Up a Tip Pool?
On a business level, you’ll want to start by looking into the legalities of implementing pooled tips based on your location.
“First things first, take 15 minutes and look up the state and federal laws applicable to your location or locations,” Grogan said and followed with some key points to pay attention to by order of importance:
- Can I require staff to enroll in a tip pool?
- What team members hold some form of manager duty and are ineligible for tips?
- Do we currently or do we plan to implement tip credits?
Once you know the regulations based on your business location—take a look at your current tip structure and weigh the pros and cons of changing things up.
Consider throwing a team meeting to hear your employee’s thoughts and concerns about updating the current tip structure.
Once you know that you’re ready to dive into the tip pool, Grogan suggests that employers:
- Rank employees by job code in order of who contributes the most to guest satisfaction
- Rank employees by job code in order of who is most important to your restaurant operations and functions.
Then consider the three categories mentioned earlier. Who do you want to participate in pooled tips? How long should the collection accumulate before distribution? And lastly, how should the ratio value of employees weigh out?
Full house pools are increasingly more common because it allows BOH members to receive some tips distribution for their contribution and helps combat wage disparities. But, employers can do a FOH pool limiting the pool to only tipped employees, or a bartender pool where bartenders pool their counter tips and tip-outs amongst themselves.
Next, you should consider the duration of the accrument. The easiest way is to do a daily tip pool where the workers’ gratuities earned per day are distributed for hours worked on that specific day.
Lastly, considering your job code ranking as mentioned, decide the ratio value of employees in a tip pool—or the point system.
Here you can determine what roles get a certain percentage of the overall tip pool. You could do an equal weighing where everyone receives an equal portion of the tip pool based on hours worked—or you can rank it from most important/skilled roles to least.
“More common is a weight favoring the tip earners, such as a 5x multiple for bartenders, 4x for servers, and 1x for bussers and hosts,” Grogan explained. “This system would mean that for every $1 the busser and host make from the tip pool, the server makes $4, and the bartender makes $5. These systems can be extremely dialed in, where you review which roles have the largest impact on the guest experience, and you more favorably reward those with more skilled positions.”
Pooled tips are a great way to manage and distribute tipped income while creating a more fair and collaborative work environment. If it’s been a while since you looked at your tip structure and want to bring your establishment up to current practices—pooling is a fantastic option.
Be sure to check in on your state and city policies regarding tips, as some regulations vary depending on location.
And, if you’re tired of managing tips, check out Tiphaus! Their software integrates with your POS system and automatically distributes gratuities to your employees based on your setup and rules—saving you time and money. Employees gain access to an app that offers tools to manage their tipped income and achieve a level of pay transparency that’s not seen elsewhere.
As always, if you need to add a few new FOH or BOH team members to join your tip pool—visit Poached! As the leading employment site for the restaurant industry, we connect your open jobs with skilled restaurant workers nationwide.