How to Create an Effective Tip Out Strategy for Your Restaurant

Creating a tip out strategy that actually works can seem like a daunting task. But don’t worry, we've got you covered. This guide is here to break it down into simple, manageable steps. Whether you run a full service restaurant or a fast casual spot, understanding the right tipping practices is essential. Not only does it help in distributing tips fairly among your staff members, but it also boosts morale and keeps everyone happy.

A well-structured tip out policy can transform the way your restaurant operates. From food runners to bartenders, every tipped employee deserves a fair share of the tips collected. So, let’s dive into the nitty-gritty of tip out structures and learn how to set up a system that benefits everyone, from back of house staff to the front of house team.

Understand the importance of tipping out

Let's break down why tipping out is crucial in the restaurant industry.

What is tipping out?

Tipping out is a practice where servers and other front of house staff share a portion of their tips with support staff, like bartenders, food runners, and back of house employees. In full service restaurants, this is a common way to ensure that everyone who contributes to the guest experience gets a fair share of the tips collected.

The significance of tipping out in the restaurant industry can’t be overstated. It ensures that all staff members, including those who might not interact directly with customers, receive tips. This is especially important for tipped employees who often rely on these tips to make up a significant part of their income. Whether it’s through a tip jar, tip pool, or a more structured tip out model, sharing tips helps maintain a harmonious work environment.

Useful Read: Tip Pooling Explained: Maximizing Fairness and Efficiency in Shared Tips

Benefits of a structured tip out system

A well-structured tip out system can transform your restaurant’s atmosphere and employee satisfaction. Here’s how:

• Improved teamwork: When tips are shared, everyone feels more invested in delivering excellent service. Servers know that part of their tips will go to the kitchen staff, so they’re more likely to communicate effectively and work together. This kind of teamwork is crucial in full service restaurants where the dining experience is key.

• Employee satisfaction: Fair distribution of tips leads to happier staff. Tipped employees earn more consistently, reducing the stress that can come with relying solely on tips from their own tables. This is particularly important in service restaurants, whether they’re casual dining or fine dining establishments.

• Retention of staff: Employees who feel appreciated and fairly compensated are more likely to stay. This reduces turnover and helps maintain a well-trained, efficient team. This is beneficial for restaurant owners and managers who want to minimize the costs associated with hiring and training new staff members.

• Compliance with regulations: A clear tip out policy helps ensure compliance with local laws regarding tip sharing and tip pooling. This includes staying on top of tip credit regulations, which allow restaurants to pay tipped employees a lower base wage provided their total tips meet the minimum wage requirements.

By understanding and implementing a structured tip out strategy, restaurant owners and managers can create a more equitable, efficient, and happy workplace.

Establish clear tipping out guidelines

Clear tipping out guidelines ensure everyone knows how tips are shared and distributed.

Determine who participates in tip outs

The first step in establishing a tip out structure is identifying who should be included in the tip out pool. In full service restaurants, this usually involves a variety of staff members:

• Servers: Often, servers are the ones collecting tips directly from customers. However, they typically share these tips with other employees who contribute to the service.

• Bartenders: Bartenders mix and serve drinks for all guests, not just those sitting at the bar, making them integral to the dining experience.

• Food runners: These staff members are crucial for delivering food from the kitchen to the table efficiently and accurately.

• Kitchen staff: Including back of house employees like cooks and dishwashers can foster a sense of teamwork and ensure that everyone who contributes to the guest experience gets a piece of the pie.

• Support staff: This can include hosts, bussers, and other front of house staff who assist in creating a seamless dining experience.

Define the tip out percentages

Once you’ve identified who participates in tip outs, the next step is to define the tip out percentages. This ensures that tips are distributed fairly based on the contributions of each role. Here are some tips on how to set these percentages:

• Servers: Typically, servers might tip out a portion of their tips, like 10-20%, to other staff members. The exact percentage can vary based on the service model of the restaurant.

• Bartenders: They might receive around 5-10% of the total tips, especially if they’re preparing drinks for the entire restaurant.

• Food runners and bussers: These roles might receive a smaller percentage, like 2-5%, since they support the servers directly.

• Kitchen staff: In some restaurants, back of house staff might receive a fixed percentage of the total tips, ensuring they are compensated fairly for their hard work.

It’s also essential to consider the service style of the restaurant. For instance, in fine dining establishments, the percentages might be higher due to the higher tips received.

Conversely, in casual dining or fast casual restaurants, the percentages might be adjusted to fit the average tips collected.

By clearly defining who participates in the tip outs and setting fair tip out percentages, you create a transparent and equitable system that benefits all employees.

This not only boosts morale but also ensures that everyone is motivated to provide the best possible service to your guests.

Choose the right tip out method

Selecting the right method for tipping out is crucial for ensuring fairness and satisfaction among staff.

Tip pooling vs. individual tipping out

When it comes to distributing tips, restaurant owners have two main options: tip pooling and individual tipping out. Both have their pros and cons.

Tip pooling:

• Pros:

  • Fair distribution: Tip pooling ensures that all tips collected are shared among all tip eligible employees, which can include servers, bartenders, food runners, and back of house staff.

  • Teamwork: Encourages a team-oriented environment since everyone knows they will receive a share of the tips, regardless of their direct interactions with customers.

  • Consistency: Provides more consistent earnings for all staff members, which is particularly beneficial in full service restaurants where tips can vary widely.

• Cons:

  • Less motivation for individual performance: High-performing servers might feel less motivated to go above and beyond if they know their tips will be shared equally.

  • Complex distribution: Requires meticulous record keeping to ensure tips are distributed fairly, considering all roles and hours worked.

Individual tipping out:

• Pros:

  • Reward for performance: Servers who provide exceptional service can keep a larger portion of the tips received, incentivizing them to perform well.

  • Simpler distribution: Easier to manage since each server is responsible for distributing their own tips to the support staff.

• Cons:

  • Potential for inequity: Can lead to significant disparities in income among staff members, especially in service restaurants where some roles are less visible to customers.

  • Possible friction: Might cause tension among staff if some feel they are not receiving a fair share of the tips.

Point-based tip out system

Another effective method is the point-based tip out system. This system assigns points to different roles based on their contribution to the overall service.

How it works:

• Assign points: Each role, such as servers, bartenders, and kitchen staff, is assigned a certain number of points. For example, servers might get 5 points, bartenders 3 points, and food runners 2 points.

• Collect tips: At the end of each shift, all tips collected are pooled together.

• Distribute based on points: The total tips are then divided by the total number of points assigned. Each employee receives an amount proportional to the points they have accumulated.

Benefits of a point-based system:

• Fairness: Ensures a more balanced distribution of tips, considering the different roles and their contributions.

• Motivation: Maintains individual motivation since points reflect the effort and impact of each role.

• Flexibility: Can be adjusted as needed, allowing restaurant owners to tweak the system based on feedback and performance.

Choosing the right tip out method depends on the specific needs and dynamics of your restaurant. Whether you opt for tip pooling, individual tipping out, or a point-based system, the key is to ensure transparency and fairness in how tips are distributed. This not only boosts morale but also promotes a more collaborative and efficient working environment.

Communicate the tipping out policy

Clear communication of the tipping out policy is essential to ensure everyone understands and follows the guidelines.

Hold a staff meeting

One of the best ways to introduce your tipping out policy is through a staff meeting. This provides an opportunity for everyone to get on the same page and ask questions. During the meeting, you can explain how tips collected will be distributed among tip eligible employees, including servers, bartenders, food runners, and back of house staff.

Discussing the tip out model in a meeting helps to address any concerns and ensures that all employees understand the process. It's also a good time to highlight the benefits of the chosen tip out method, whether it’s tip pooling, individual tipping out, or a point-based system. Emphasize that the goal is to create a fair and transparent system that benefits all staff members, from the front of house to the back of house.

Provide written guidelines

Having written guidelines is crucial for clarity and consistency. These guidelines should outline the tipping structure, including who participates in tip outs and the tip out percentages for each role. Written guidelines serve as a reference for employees and help prevent misunderstandings about how tips are divided.

Make sure the written guidelines include details about how tips received from credit card tips and cash tips will be handled. This ensures that all tipped employees know what to expect and can track their earnings accurately. Additionally, provide information on how tip credits and payroll taxes are managed, as well as any local laws and tip pooling laws that the restaurant must comply with.

By holding a staff meeting and providing written guidelines, restaurant owners and managers can ensure that their tip out policy is communicated effectively. This not only helps in distributing tips fairly but also promotes a positive working environment where all employees feel valued and informed.

Implement and monitor the tip out system

Implementing your tip out system is just the beginning. It’s crucial to monitor and adjust the system to ensure it works smoothly for everyone.

Track tips accurately

Accurate tracking of tips is vital for a fair tip out structure. It ensures that all tips collected, whether they are cash tips or credit card tips, are properly accounted for and distributed. Use reliable tools and systems for record keeping to track tips received and tips paid out.

There are several methods and tools available for tracking tips:

• Point of Sale (POS) systems: Many modern POS systems have built-in features for tracking tips, making it easier to record and distribute tips accurately.

• Tip tracking software: Dedicated tip tracking software can help manage pooled tips and individual tip outs efficiently.

• Manual tracking: For smaller establishments, a manual log might suffice, but it requires diligent record keeping to ensure accuracy.

Accurate tracking helps avoid discrepancies and ensures compliance with local laws and tip pooling laws. It also helps in calculating tip credits and payroll taxes accurately.

Gather feedback from staff

Implementing a tip out system is not a set-it-and-forget-it process. Gathering ongoing feedback from your staff is essential to identify and resolve any issues that might arise. Regular feedback sessions can help you understand how the tip out model is working in practice and whether any adjustments are needed.

Here’s how to gather effective feedback:

• Staff meetings: Regularly scheduled staff meetings provide a platform for employees to voice their concerns and suggestions.

• Surveys: Anonymous surveys can be a useful tool for collecting honest feedback from staff members who might be hesitant to speak up in meetings.

• One-on-one discussions: Personal meetings with staff members can provide deeper insights into their experiences and concerns about the tip out system.

By actively seeking feedback, restaurant owners and managers can make informed adjustments to the tipping structure, ensuring it remains fair and effective for all employees. This not only helps in maintaining a positive work environment but also ensures that all tipped workers feel valued and fairly compensated.

Adjust the strategy as needed

Even the best tip out systems need regular tweaks to keep everything running smoothly and fairly.

Review and revise periodically

Periodically reviewing your tip out strategy is crucial to ensure it remains effective and fair. Restaurants split tips in various ways, and what works for one might not work for another. Therefore, regular check-ins are essential.

Quarterly reviews: Conduct quarterly reviews of your tip out structure. This helps identify any patterns or issues that might have emerged over time.

Feedback analysis: Use the feedback gathered from staff to make informed adjustments. If multiple employees mention the same issue, it’s likely a genuine concern that needs addressing.

Performance metrics: Analyze performance metrics such as employee satisfaction, turnover rates, and customer service ratings. These can provide insights into how well your tip out system is working.

By keeping an eye on these factors, restaurant owners can tweak the tipping structure to ensure it continues to benefit all employees, from front of house staff to back of house employees.

Stay compliant with regulations

Staying updated with local labor laws and regulations related to tipping out is non-negotiable. Compliance not only protects your business but also ensures fair treatment of your staff.

• Local laws: Familiarize yourself with local laws regarding tip pooling, tip credits, and minimum wage requirements. Regulations can vary significantly from one place to another.

• Federal guidelines: Ensure you’re compliant with federal guidelines, such as those set by the Department of Labor. This includes understanding rules about tip pooling laws and the use of tip credits.

• Regular updates: Laws and regulations can change, so it’s important to stay informed. Subscribe to industry newsletters, attend relevant workshops, or consult with a legal expert periodically to ensure your practices are up-to-date.

By regularly reviewing your tip out strategy and staying compliant with regulations, you can maintain a fair and effective system that supports all tipped employees. This not only fosters a positive work environment but also ensures that your restaurant operates smoothly and legally.

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Conclusion

Creating a tip out strategy that works for your restaurant is essential for ensuring fairness and boosting employee satisfaction. By understanding the importance of tipping out, establishing clear guidelines, choosing the right tip out method, and effectively communicating the policy, you can foster a positive work environment.

Accurately tracking tips and gathering feedback from staff will help you implement and monitor the tip out system effectively. Regularly adjusting the strategy and staying compliant with local laws will keep your restaurant running smoothly and keep your staff happy.

Remember, a well-structured tip out system benefits everyone— from front of house staff like servers and bartenders to back of house employees like kitchen staff and food runners. By distributing tips fairly and transparently, you ensure that all tipped employees feel valued and motivated.

Whether you run a full service restaurant, a fast casual dining spot, or a fine dining establishment, implementing a robust tip out policy is crucial. Use tools like POS systems and tip tracking software to maintain accurate records, and stay informed about local regulations to ensure compliance.

A fair and transparent tipping out strategy is not just good practice; it’s vital for the success and harmony of your restaurant. So, take the time to create and maintain a tip out system that works, and watch your restaurant thrive.