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Creating a Restaurant Tip Policy for Employees: What to Consider

April 25, 2023 7 min
Senior Content Manager at Eat App
Reviewed by
Co-founder and CEO of Eat App

Designing and implementing an effective tip policy for your restaurant is crucial for maintaining a positive work environment and ensuring fair distribution of tips among your employees. To create the ideal policy, you need to consider several factors, such as legal requirements, employee preferences, and customer expectations. 

This article will discuss various aspects of creating a tipping policy that both supports your employees and aligns with the goals of your establishment.

But first, let's discuss what the average tipping policy is and why you tip at a restaurant:

Tipping Jar

Key Takeaways

  • Hospitality is a term often used in the food service world.
  • Well-rounded establishment will be equally focused on delivering excellent service.
  • Global hospitality market experienced a growth of 7.0% in 2023.
  • Understand what hospitality is, its importance, and how to implement it in your operations.

What is the tipping policy?

According to Robin DiPietro, Ph.D., professor and program director at the University of South Carolina's College of Hospitality, Retail and Sport Management, tipping at restaurants should range between 15% (for acceptable service) to 20% (for really good service).

What is the overall purpose of tipping?

Tipping (sometimes known as "dricks") is frequently not expected but is yet done to appreciate or reward good service. The most popular methods of leaving tips are to round up the tip credit or amount or leave small change on the table.

Now, let's go back to review the importance of a tipping policy at your restaurant. 

The purpose of tipping

Understanding the importance of a tip policy

A well-crafted tip policy can have a significant impact on your restaurant's overall success, staff morale, and customer satisfaction. It is essential to understand why a tipping policy is necessary and how it can benefit your business.

When it comes to hourly wages in the restaurant industry, tips are an integral part of the compensation for many employees. Tips are a way for customers to show their appreciation for excellent service, and they can significantly impact an employee's income.

Therefore, it's crucial to have a clear and fair tip policy in place to ensure that employees receive their rightful share of the tips they earn.

Understanding the importance of a tip policy

Legal requirements and regulations

Before creating your tip policy, you must be aware of the legal requirements and regulations governing tipped employees in your region. These laws determine wage rates, tip pooling practices, tip credits, and the distribution of service charges. It's essential to ensure that your tip policy is compliant with these rules as non-compliance can lead to fines, penalties, and potential damage to your restaurant's reputation.

Legal requirements and regulations

Moreover, complying with these regulations can help build credibility and trust with your employees and customers. It shows that your restaurant is committed to fair labor practices and values its employees' welfare.

With that being said, here are a few questions you need to ask yourself and be aware of:

What does the federal law say about tips?

A tipped employee's employer is only obligated to pay $2.13 per hour in direct wages if the sum of that amount and the tips is at least the federal minimum wage.

Are tip pools legal?

The amount of tip pool payouts is not required by law to be based on merit, although tip pooling is lawful. Employees who are tipped may not be required by their employer to give their tips to a manager, supervisor, or owner (sometimes known as "the house").

What is tip credit?

It is merely a number that is used to determine the minimum wage. Tip credits demonstrate to the federal government that Employee A has earned enough tips to avoid receiving the full minimum wage.

Let's take a look at how you can make sure your staff gets a fair distribution of the tips:

Ensuring fair distribution of tips

Employees appreciate and share tips and rely on additional income from tips. A well-defined tip policy can help manage any disputes by establishing guidelines on how tips are shared among staff. It encourages transparency and ensures that employees receive a fair portion of the tips they earn, leading to a more motivated and satisfied workforce.

A fair distribution of tips can also help reduce turnover rates and attract top talent to your restaurant. Employees are more likely to stay and recommend your restaurant to others if they feel valued and respected.

Ensuring fair distribution of tips

Encouraging teamwork and collaboration

A good tip policy promotes teamwork and collaboration among your employees. In a tip-sharing or tip-pooling arrangement, employees are encouraged to work together towards delivering excellent customer service and fostering a positive atmosphere. This collaboration can significantly improve the overall dining experience for your customers and lead to increased revenue for your restaurant.

Moreover, a collaborative work environment can lead to better communication, increased productivity, and a stronger sense of community among your staff. It can also help create a more positive and welcoming atmosphere for your customers, leading to increased loyalty and repeat business.

Encouraging teamwork and collaboration-2

In conclusion, a well-crafted tip policy is essential for any restaurant looking to succeed in a competitive industry. It can ensure legal compliance, promote fairness and transparency among employees, managers, and supervisors and encourage teamwork and collaboration. By prioritizing your employees' welfare and creating a positive work environment, you can attract and retain top talent and provide exceptional service to your customers.

Types of tip policies

When it comes to running a successful restaurant, implementing a tipping policy that works for both employees and customers is crucial. There is no one-size-fits-all solution for a tipping policy, as each restaurant's specific needs and goals may differ.

Below are three common types of tip policies to consider:

Types of tip policies

A tip pool

Tip pooling involves collecting all tips received by employees during a shift and then distributing them among the staff based on an agreed-upon formula or criteria. In this arrangement, both front-of-house staff might receive tips, and back-of-house staff might benefit from tip sharing. A successful tip pooling system relies on fair and transparent distribution rules to ensure employees feel rewarded for their work.

One advantage of tip pooling is that it can help to reduce wage disparities between front-of-house and back-of-house staff. In traditional tipping models, servers receive the majority of tips, while kitchen staff and other back-of-house employees receive little to none. This can create tension and resentment between employees. With tip pooling, everyone has a chance to earn a fair share of the employee's tips, which can lead to a more harmonious workplace.

However, tip pooling can also be challenging to implement successfully. It requires clear communication and agreement among all employees regarding the distribution formula. If some employees feel that the distribution is unfair or opaque, it can lead to dissatisfaction and conflict.

Individual tips

In an individual tips system, each server is responsible for collecting and keeping their tips. This method can encourage friendly competition among servers and reward employees who perform exceptionally well. However, it can also lead to an overly competitive atmosphere non tipped employees, negatively affecting collaboration and teamwork, and might leave back-of-house staff without a share of the tips.

Individual tips can also be challenging for employers to monitor and regulate. There is a risk of underreporting or misreporting tips, which can lead to legal and financial issues for the various restaurant owners. Additionally, some customers may be confused or unsure about how much to tip, which can lead to inconsistency in the number of tips received by each server.

Service charges

Some restaurants choose to implement a service charge instead of a cash wage or rely on tips. A service charge is a percentage of the total bill automatically added to the customer's check. Usually, this fee is divided among service staff, either by pooling or based on individual performance. Although service charges can provide a more predictable and stable income for employees, they might not align with customer preferences and expectations surrounding tipping.

Service charges can also be controversial, as some customers may feel that they are being forced to pay a fee for a service that they did not receive or that was not up to their standards. Additionally, service charges can be confusing for customers who are used to tipping, leading to awkward interactions and misunderstandings.

Ultimately, the best tip policy for a restaurant depends on its specific needs and goals. Before implementing a new tip policy, it is important to consider the potential advantages and disadvantages of each option and to communicate clearly with employees and customers about the changes.

Factors to consider when creating a tip policy

When designing a tip policy for your restaurant, it is essential to consider various factors to ensure its success and effectiveness. Consider the following areas:

Employee input and feedback

Involve your employees in the creation of your tip policy to ensure that their preferences and concerns are considered. Encourage open and honest dialogue about how the tip system should work for both front- and back-of-house staff. Asking for input can lead to greater employee satisfaction with the tip policy and improve overall morale.

For example, you could hold a meeting with your staff to discuss their thoughts on the current tipping system and how it could be improved. You could also create a survey to gather anonymous feedback from your employees. This way, you can get a better understanding of what your staff thinks and make changes accordingly.

Restaurant size and staffing

Consider the size of your restaurant, the number of employees, and the roles they fill when designing your tip policy. Factors such as the size of the service area, seating capacity, and the number of staff members can play a significant role in how your policy is structured and how well it functions.

For instance, if you run a small restaurant with a limited number of tables, you might consider implementing a pooling system where all tips are divided equally among staff members. This can help to avoid conflicts over who gets which tables and ensure that everyone is compensated fairly.

Customer preferences and expectations

It's important to keep the preferences and expectations of your customers in mind when designing your tip policy. Some customers may feel more comfortable with traditional tipping, while others might appreciate the consistency of a service charge.

One approach you could take is to offer customers a choice between traditional tipping and a service charge. This way, they can choose the option that they feel most comfortable with. You could also experiment with different methods, gather feedback, and adjust your policy as needed to best accommodate your customers' preferences and expectations.

Overall, creating a successful tip policy requires careful consideration of various factors, including employee input and feedback, restaurant size and staffing, and customer preferences and expectations. By taking the time to design a policy that works for everyone involved, you can help to ensure that your restaurant runs smoothly and that your staff is compensated fairly for their hard work.

Implementing and communicating the tip policy

Developing an effective tip policy is just the first step; now, you need to ensure that it is both successfully implemented and communicated to your employees.

Training and education

Ensure that your employees receive the necessary training and education about your tip policy, including how it works, how it will be enforced, and any legal requirements connected to it. Staff members should be comfortable and confident in discussing the policy with customers if needed.

Monitoring and adjusting the policy

Once your policy is in place, it is essential to monitor its effectiveness and make adjustments as needed. Regularly solicit feedback from employees and customers alike to gauge policy effectiveness, and make changes based on their responses. A successful tip policy should not be seen as static but as an evolving component of your restaurant's operations.

Addressing employee concerns and conflicts

If employee concerns or conflicts arise regarding your tip policy, it's crucial to address them efficiently and professionally. Maintain open lines of communication, listen to employee feedback, and be willing to make necessary changes to accommodate their needs. Handling conflicts promptly and effectively can lead to a more positive work environment and a stronger overall tip policy.

Creating a restaurant tip policy that is fair, well-communicated, and adheres to legal regulations is a crucial aspect of managing a successful restaurant. Remember to consider the importance of teamwork, the types of tip policies, and various factors that can influence the success of your policy.

With careful planning and execution, your restaurant's tip policy can lead to increased employee satisfaction, enhanced customer experience, and improved overall profitability.

FAQ about Restaurant Tips

Is tip pooling a good idea for small restaurants?

Although pooling tips have both advantages and disadvantages, it is a popular practice at many bars and restaurants. The most crucial step is to let your staff know your aims and to be open to their criticism. After all, you are requesting their financial cooperation.

What is tipping out?

A tip-out takes place when a highly-tipped employee in a restaurant splits their tips with other tipped staff members. Tipping out provides tips to all those who are qualified to receive them. For instance, diners who tip $20 at a restaurant could believe the entire sum is given to their waitress.



Senior Content Manager at Eat App

Elana Kroon used to work in restaurants before becoming a journalist and expert restaurant industry content creator at Eat App.

Reviewed by

Nezar Kadhem

Nezar Kadhem

Co-founder and CEO of Eat App

He is a regular speaker and panelist at industry events, contributing on topics such as digital transformation in the hospitality industry, revenue channel optimization and dine-in experience.

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