Tip distribution can be a lot easier. Here's how.

What are the different restaurant tip out structures?

Tipping and restaurants have long gone hand in hand. Restaurants in the U.S. almost always offer guests the opportunity to give an additional amount on top of their check total as a “thank you” for an exceptional dining experience.

But collecting tips from guests is only one piece of the equation in restaurants. The next big piece to figure out as a restaurant is how you want to distribute the tips back to your employees. There are three common ways to distribute tips back to employees:

1. Tipped employee keeps their tips: This one is simple enough. Whatever tips the employee makes during their shift, they get to keep.
2. Tip pooling: A group of tipped employees group their tips and split them, usually evenly, at the end of a certain time frame.
3. Tip sharing: A group of tipped employees contributes a portion of their tips to non-tipped employees. This is most common in full service restaurants where servers have a support team, such as bussers and food runners or bartenders who have barbacks.

Some restaurateurs decide to go the most common route, with tipped employees like waitstaff and bartenders keeping whatever tips they make during their shift. Others decide to do tip pooling or tip sharing. You have to decide what makes the most sense for your restaurant, while also considering the federal and state regulations (or limitations) that may apply to your desired approach.

What is tip pooling?

Tip pooling is the simplest way of collecting tips earned by a role and redistributing them within the same group or among additional employees. Tip pools are based on tips and/or gratuity and usually not on the percentage of a sales category.

In addition to federal regulations regarding tips, such as those found in the Fair Labor Standards Act (FLSA) Fact Sheet #15, some state and local governments have implemented their own tip pooling regulations. We recommend you check federal, state, and local laws on tipping prior to creating a tip policy for your restaurant.

Note that according to the Department of Labor's Fair Labor Standards Act (FLSA), a valid tip pool may not include employees who do not customarily and regularly receive tips. In some states, restaurants can pay their tipped employees a reduced wage of a minimum of $2.13/hour, so long as the combination of the employees' wages and tips bring the employee's hourly wage up to the requisite minimum wage. This is known as a tip credit. It is important to check what additional tip credit regulations may be applicable to you when choosing whether to utilize a tip credit.

Get the Tip Pooling Calculator

Ready to get calculating? Download the Tip Pooling Calculator to learn how to distribute tips back to your restaurant’s employees using the tip pooling method.

DISCLAIMER: The Tip Pooling Calculator is for informational purposes only, and Toast does not guarantee the accuracy or suitability of its content for a particular purpose. The information obtained by using the tool is not, and should not be taken as, accounting, tax, financial or legal advice. Additionally, Toast does not provide support services for the use of this tool or the results obtained from it.