The pros and cons of tip sharing in restaurants

The number of people who always tip when dining in restaurants is declining. That’s bad news for restaurant staff who rely on gratuities and has made the already heated debate around the practice of tip sharing, or tip pooling, even more divisive.

With strong opinions on both sides, it can be hard for restaurant owners and managers to know whether implementing a tip sharing system will be right for their business. With that in mind, here’s an overview of the debate so far and the benefits and pitfalls of this controversial concept.

Tip sharing in restaurants defined

Everyone is familiar with the traditional tipping model: diners pay a voluntary, but socially expected, tip of at least 15% for good service. This money is given, in cash, directly to their server and is kept by that server. Tip sharing, or tip pooling, is a formal arrangement that gives the restaurant the ability to collect all gratuities and then redistribute the money equally between workers.

Tip sharing is based on the idea that a gratuity is given for the overall dining experience, not just how quickly and politely the food was served. This means kitchen staff, bartenders, busboys, and front-of-house hosts all share in the reward.

The way the split is handled can vary from restaurant to restaurant. There is no legally mandated method of working out how tips are shared. Common ways of working out the split include:

• Hours worked — a simple and obvious solution is that those who work the longest shifts get the bigger share.
• Weighting based on role — each role in the restaurant is given a points value, and tips are totaled and divided according to that weighting.
• Split the split — some restaurants require servers to share a percentage of their tips with the team and keep the rest.

Tip sharing in restaurants and the law

Given how central tipping is to the service industry economy, it’s no wonder it’s been a legislative battleground. In 2011, the Obama administration blocked tip sharing with all staff on the basis that the money given in tips belongs to the employees in question and therefore cannot be taken and redistributed to non-tipped staff by the restaurant.

The Trump administration made changes to the Fair Labor Standards Act (FLSA) in 2018. Under the rolled back law, tip sharing can now include everyone involved in the chain of service, provided the employer pays servers the full minimum wage and does not claim the tip credit. Tip credits allow tipped workers to receive a lower minimum wage, with tips making up the rest of their salary.

Tip sharing does not allow managers or owners to personally take a cut of employee tips. This is still prohibited by the FLSA.

The main thing to remember is unless a formal tip sharing system is in place, tips belong to employees, not the restaurant. While restaurants are allowed to bring in a tip sharing system, best practice says it should be done with the agreement of the employees and is clearly explained in their contracts.

As always, with any kind of labor legislation, there may be local or state laws relating to gratuities. Be sure to check your exposure in this area before proceeding with any decisions regarding the income of tipped employees.

The pros of tip sharing

The main benefit of tip sharing is that it addresses the imbalance between front-of-house servers and other staff by pooling gratuities and then disbursing them to all staff.

Although well established, traditional tipping is an erratic way of being paid. In general, women tip more than men, and millennials tip more than boomers but less often. Since it relies entirely on social expectations rather than legislation, tips can also be vulnerable to discrimination. Gender and race often factor into how much a person is tipped. This means that even for serving staff who benefit from tips, the amount earned can vary wildly depending on myriad factors.

Tips can also create an “us and them” situation between front of house (FOH) and back of house (BOH) staff. Most restaurants experience this friction, where cooks and busboys are out-earned by servers simply because one group earns tips and the other doesn’t. Hiring kitchen and other backroom staff is easier when they’re not at a disadvantage compared to tipped front of house workers.

In theory, tip sharing can drive stronger team building by encouraging a greater focus on the overall dining experience. Some restaurants report that tip sharing can even result in higher earnings across all staff.

The cons of tip sharing

Anything that impacts how much money staff takes home each shift is bound to cause friction, and tip sharing is no exception. As you’d expect for a system that takes money from one group and hands some of it to others, it’s divisive. Implementing such a system can introduce negativity into the workplace if handled poorly.

While some locations have found a workable tip sharing model, with buy-in from all staff, there is a strong chance that tip sharing simply takes a small pool of money and spreads it more thinly. Research has shown that although diners expect and prefer their server to keep all of their tips, a tip sharing system doesn’t change the amount people tip.

Tipped employees don’t earn big bucks and mostly rely on their tips more than their contracted salary to make ends meet. This means anything that chips into that income can have an immediate impact on their quality of life and, by extension, their engagement at work. Introduce a tip sharing system to an existing restaurant, and your best front of house staff, the ones used to earning the most in tips, may well leave for a restaurant that uses traditional tipping in order to maintain their income level.

Tip sharing can be the answer to the hiring crisis

Although controversial, by allowing tips to be shared with all staff, a carefully implemented tip sharing policy is one way to make kitchen roles as attractive as service roles and help eateries bounce back from the current labor crisis. Restaurants were some of the businesses hardest hit during the pandemic and have found it difficult to attract and retain staff since reopening. Back-of-house roles have been particularly hard to fill, thanks to the wage disparity caused by tips only being earned by front-of-house staff.

If the prospect of implementing a tip-sharing system seems overwhelming, Workforce.com can not only ensure you are in compliance with local wage and hour laws but also handle the tip-sharing process itself. Just connect Workforce.com to your POS system and set the percentage of tips to be shared, and Workforce.com will pay employees what they’re owed based on hours worked. It makes this sometimes fraught process simple and, more importantly, transparent.

Learn more about how to set up tip sharing in Workforce.com’s payroll system by contacting us. We’d love to talk you through it.