Calculating tip pools can be hard. But calculating tip pools at 2 a.m. in the back office after pulling a 10-hour shift? Let’s just say that’s not anyone’s idea of a good time.

Restaurant managers have a lot on their plates, and for teams that still tip out in cash, you can add bank teller-slash-mathematician to their job description, too. 

Tip pooling can be a great way to ensure everyone on your team gets rewarded for a job well done. But if it’s not done accurately, fairly, and legally, the consequences can be anything from accounting headaches to unhappy employees to serious lawsuits.

To ensure you get all of the benefits of tip pooling and without the risk: here are a few best practices and formulas that you can put to work. 

Setting a tip sharing policy

Tip pooling and tip sharing are two ways restaurant owners can increase employee wages without increasing labor costs, and it can help foster a sense of teamwork among employees. It does, however, mean that your managers will need to do a bit of math before distributing tips at the end of a shift.

First things first, you need to choose a tip pooling or tip sharing system and stick with it. Here are some easy ways to split tips between employees — and how to calculate tips for each of them.

1. Tip Pooling 

If you want to collect all tips and redistribute them evenly, tip pooling is for you. This is a way to ensure that all servers, bussers, cooks, hosts, and dishwashers benefit from the tipping system. Everyone has a stake in the game to provide excellent service to guests. However, tip pooling is heavily regulated — so make sure you check out your state’s tip pooling laws before implementing this system.

To calculate each employee’s tips after a shift, you generally just need to divide the total tips by the number of eligible employees: 

• 3 servers, a bartender, and a host are all eligible for tips
• Total tips = $1000 
• $1000 tips / 5 employees = $200 each

In restaurants, shifts can often be unpredictable. One server may get cut way earlier than the other, so splitting evenly doesn’t always feel fair — and employees may not be willing to work under this system. To make things more equitable, some restaurants choose to split pooled tips a different way. If you’d like to follow the “hours worked” system, you can divide the tips by the total number of hours worked and tip each employee based on their hours worked. For example: 

• 2 servers and 1 bartender are eligible for tips 
• Server #1 and the bartender worked 8 hours each 
• Server #2 worked 4 hours
• Total tips = $500
• Total hours worked = 20
• Each hour worked = $25 in tips 

Now we’ll multiply each employee’s hours by 25 to find out how much they earned this shift:

• Server 1 = $200 
• Server 2 = $100 
• Bartender = $200

 This system requires a little more thought (and in real life, the numbers won’t be quite as clean), but your servers and bartenders may find this more agreeable than an even split.

      2. Tipping out

Most servers are familiar with “tipping out,” a system where they share a percentage of their tips with bartenders, hosts, and other support staff. In this scenario, the server keeps the majority of the tips they’ve personally earned, but other staff members are still rewarded for their contribution. 

Usually tip out percentages are based on sales. You’ll need to set your own tip out policies, but here’s an example of how to calculate tip outs:

• Your servers tip out 5% of alcohol sales to bartenders and 2% of food sales to the host
• A server sold $500 in alcohol and $1000 in food
• The server received $300 in tips 
• Bar tip out = $25 
• Host tip out = $20 
• The server would leave with $255 in their pocket 

      3. The Point System

While very similar to the “tip out” system we just described, the point system is another valid way to share tips among employees. You assign a point value to each role in the restaurant, and use those values to distribute tips. Here’s an example of how it works when there are 2 servers, a host, and a bartender working together: 

• 2 servers = 35 points each
• Host = 10 points 
• Bartender = 20 points 
• Total tips = $1000 
• Total points = 100
• $1000 in tips / 100 points = $10 per point

Now, you multiple each worker’s points by 10 to see their tips earned for the night: 

• Server tips = $350 each 
• Bartender tips = $200 
• Host tips = $100

Go Cashless

No matter which system works best for you, we also recommend ditching cash tips. After doing all the tip calculations for the night, the last thing your managers want to do is sit and count cash.

Go digital with Kickfin instead. Our tip distribution platform allows you to quickly input employee tips and send money straight to your employees’ bank accounts. Your managers will save time, your employees will be happier, and you’ll save on labor costs. Request a demo to see Kickfin in action today.

Last month, Kickfin sponsored FSTEC, a premier industry event in Texas, where co-founder Justin Hassan had the chance to moderate a panel of executives from top-tier franchises. He sat down with:

• Jakub Petri: Senior Director, Global Visa Direct
• Dave LaRocque: Director of IT, Rock N’ Roll Sushi
• Jared Hinshaw: VP of Technology, Walk Ons
• Scott SirLouis: COO, FSC Franchise Co. (Beef ‘O’ Brady’s / The Brass Tap).

Panelists discussed the “hidden” costs of a traditional tip program — and how revamping their approach to tipping has improved recruiting and retention, cut labor costs, streamlined accounting, and reduced theft, human error, and compliance issues. If you missed it, scroll down for a quick breakdown of key takeaways.

Tipping Is Here To Stay

Compensation is more important than ever, especially in a tight labor market. Most hospitality workers have come to expect and enjoy the benefits of being tipped out in cash on a nearly daily basis. Tips not only help employees pay their bills, they keep your labor costs down as well. With the added tip revenue, tipped service employees’ earnings increase to $25 an hour, on average—a far cry from the $7.25 per hour national minimum wage. Can you afford to pay your employees the equivalent of what they make in tips? If not, tips may be the only way to find and retain skilled service workers.

Cash and the tip-out dilemma

Most customers are paying with credit cards or digitally—leaving restaurants without adequate cash to tip out employees at the end of each shift. Even with this roadblock, 90% of restaurants are still tipping out with cash.

But tipping out with cash comes with a host of hidden costs: 

• Weekly or daily bank runs
• Expensive cash deliveries
• Risk of theft, skimming, and human error
• Tedious cash counting & distribution
• Labor costs (waiting on the clock)
• Rounding up to the nearest dollar 
• Complicated reconciliation and reporting 

Tipping Transformation

These days, higher earnings from tips aren’t enough to keep your best employees around. Naturally, workers want more control over their pay—and when they receive it.

According to a recent survey of service workers: 

• 83% want instant access to their pay after every shift 
• 80% prefer funds to go straight to their bank accounts
• 81% are more likely to choose an employer that offers on-demand pay

3 Steps To Reinventing Your Tipping Program

Restaurants should aim to stay ahead of the curve when it comes to digital tipping—or you risk losing your best employees. As you revamp your traditional tip processes, follow these steps to ensure a smooth transition.  

1. Talk To Your Employees

Present your employees with better options than cash-only tips, including instant digital tips, tip-out cards, and payroll tips. By putting the choice in their hands, you’re empowering employees to control their financial future. Most importantly, be sure to explain why this change is good for both employees and the business as a whole.

2. Revisit Tipping Laws

Laws vary from state to state and country to country, so you’ll need to be up-to-date and flexible when it comes to your tip structure. It’s especially important to read up on tip-pooling laws, as new litigation has been popping up frequently. With compliance in mind, seek a solution that helps you stay above board by placing guard rails around your tip program. 

3. Choose a Vendor

Before you can implement a new tip program, you’ll need to choose a vendor. Look for a partner that has a robust customer service department to help you smooth over any bumps in the road and help you train staff. Ultimately, this relationship should help you build your business and hire new employees, while helping your employees reach even greater financial success.

Interested in simplifying your tip-out process? Request a demo to see how Kickfin works.

Tipping out in cash is one of the most analog processes in the restaurant industry. And it’s more than a headache: It’s probably impacting your bottom line.

From time-consuming bank runs to tedious cash counting to the ever-present risk of theft and human error: cash tip-outs are, quite simply, a liability for your people and your bottom line.

And yet: 90% of restaurants continue to pay tips in cash. 

We get it.

Change is hard, and sometimes the status quo is the path of least resistance. But there’s never been a better time to hit the reset button on tip-outs.

Going into 2023, digital tipping will be one of the largest transformations to the hospitality and service industries.

If you’re not sure where to start: we’ve got you covered.

Get the Restaurant Exec’s Guide to Digital Tipping [2023 Edition]

Check out our free Digital Tipping Guide to learn about the overnight, measurable ROI you can expect when you make the switch. Inside the guide, you’ll get more details about the hidden costs of cash tip-outs as we move to an increasingly cashless society.

You’ll also learn about the less-obvious benefits of cashless tipping, including:

• Reduced employee turnover
• Robust tip payment tracking and reporting
• Org-wide compliance with complicated tipping regulations
• And more! 

Plus: when you download the guide, you’ll get a rundown on the Top 5 “Must-Haves” when selecting a digital tipping solution. Choosing the right vendor is key to the success of any digital tipping program — and it all starts with understanding your own needs and understanding all of the options on the table. 

Want the Cliff Notes version?

We’ll break it down for you. A digital tipping platform allows you to tip out your servers, bartenders, and other hospitality staff without the hassle of payroll tips, bank runs or bill-counting.

To get all of the benefits of digital tipping, it’s critical that you select a software that gives your employees the options — including (and especially) the option to have their tips sent instantly and directly to their existing bank account. 

Whether they opt for instant digital deposits or payroll tips, employees appreciate having more control over when and how they get paid. On top of happy employees, your flexible payment options make for a great hiring tool to attract excellent workers, even amidst a labor shortage. 

If you want to skip the guide and see digital tipping in action: schedule a demo today and we’ll give you a free, personalized walkthrough of Kickfin!