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The Guide to Equitable Restaurant Tip Payout Methods & Systems

The Guide to Equitable Restaurant Tip Payout Methods & Systems
Ashlen Wilder

By Ashlen Wilder

There's no one-size-fits-all answer when it comes to distributing tips among restaurant staff, but there are a few different methods that are commonly used.

This guide will cover some of the most popular methods for restaurant tip payouts, and offer some pros and cons for each so that you can decide what will work best for your establishment. Find the full guide to restaurant tip outs here.

Tip Out Methods and Systems

Comparison table

Type Who receives tips Pros Cons Best for

Tips paid to those who collect

Servers, sometimes other FOH staff

Incentivizes servers

Possibility of an uneven tip out and wage gaps

Full-service restaurant, fine dining

Even tip splitting

All eligible staff

Even and fair, provides camaraderie amongst staff

Some staff may not hold themselves to a high standard of service

Cafes, breweries, some full service restaurants, casual restaurants

Tip pooling


Ensures that BOH staff receives a share of tips

Takes away a considerable portion of server's share requiring higher hourly wages

Casual restaurants, fast food, quick service

Percentage-based tips outs

Servers, other FOH staff

A fair and formal way to divide tips amongst servers and other staff

Structure and percentages must be laid out clearly and directly or this structure can become confusing

Establishments that require a diversity of staff (servers, hosts, bussers, food runners, etc.) to run smoothly

Total hours worked

All eligible staff

A straightforward way to ensure that all staff is tipped out evenly for each hour worked

Does not take into account level of experience, position, or standard of service provided

Fast casual,



Percentage of sales

All servers or cashiers, other FOH staff

Encourages team to work together to provide high quality service

Servers make less in tips, and puts more pressure on them to sell more

Full service restaurants, casual restaurants

Points based

All eligible staff

Distributes tips based on level of responsibility of each position

Does not take into account slower shifts or individual performances

Full service restaurants

Tips Paid To Those Who Collect

The most straightforward tipping approach is letting employees who directly earn tips keep them. It would be up to the recipient's discretion how much — if any — of their tips they share with their coworkers.

This approach incentivizes servers to create a stellar experience for every party, as they directly benefit from higher tips. It could also incentivize other FOH employees like bartenders and bussers to work faster and alongside highly-tipped servers to earn a portion of their gratuities.

As a downside, servers don't have to share these tips, and there might not even be a tip out. This discrepancy worsens the wage gap and can put servers working for themselves rather than as a team. It also puts added financial pressure on the restaurant to cover the tip credit if these workers don't make at least the Federal minimum wage between their tips and their tipped minimum wage.

Even Tip Splitting

Even tip splitting is when all earned tips are pooled and split evenly among qualified staff. You might see this solution at fast-casual restaurants or coffee shops, where a tip jar sits on the counter, and its contents are divided among the team at the end of a shift.

At full-service restaurants, even tip splitting is still an option. When done well, it creates a sense of camaraderie rather than competition among staff. For example, a server stuck with a table that doesn't tip well — regardless of their server's efforts — wouldn't have to worry about the personal financial implications.

However, this option can backfire if not all team members hold themselves to the same standard of service. A positive, efficient server who consistently brings in 20-25% tips might feel neglected when being forced to share his earnings with a less-attentive server which averages 15-18%. This option can also diminish servers' earnings by handling more tables and larger parties.

Tip Pooling by FOH & BOH

Until recently, back-of-house workers were not legally allowed to be included in tip pools. But the Department of Labor and the Fair Labor Standards Act (FSLA) has made it clear that cooks, dishwashers, and their back-of-house coworkers can be included in the tip pool.

Sharing tips with kitchen employees effectively bridge the wage gap between FOH and BOH workers. It results in better kitchen staff retention and provides more compensation to those working busier shifts.

However, this approach can take even more of a cut out of a server's tips. Effective servers which are used to taking 50-70% of the tips they worked to earn, for example, may now find themselves only keeping 30-40%. Additionally, to take advantage of this new option, restaurants must pay employees the full minimum wage rather than benefiting from any tip credit. For those reasons, you might consider a kitchen appreciation fee instead of sharing FOH tips with kitchen staff.

Percentage-Based Tip Outs

The most formal option — often the most agreeable — is percentage-based tip-outs. This method looks at a server's total tips for a shift and then distributes a portion to other employees based on a set percentage. For example, if a server receives $100 in tips for the shift, a percentage-based tip out may distribute that money as follows:

  • 70% for the server to keep, or $70.
  • 15% for the bartender, or $15.
  • 10% for the food runner, or $10.
  • 5% for the busser, or $5.

With this model, tip-outs must be closely monitored. You'll also need to determine if tip pooling within this model—do all servers in a shift get 70% of all tips collected, or does each server keep 70% of their earnings?

This approach to tipping out is systematic and easy to understand, so employees can reasonably predict how much they'll earn per shift.

Total Hours Worked Based Tip Outs

Another form of tip pooling, tips based on hours worked adds the total amount of tips made in a week or day, and divides the total amount of tips by the total hours worked. Then, that number is the number of tips/hours employees would receive for every hour they worked.

For example, say that your coffee shop made $75 in tips in one day. Two employees worked in the morning for 6 hours, and two each worked a 4-hour shift in the afternoon. Those two employees worked 20 hours that day, so $75/20= $3.75/hour in tips. The employees who worked the long shifts in the morning would receive $22.50 each, while the employees in the afternoon would receive $15 each.

This structure works best in a food service operation where tip-eligible employees do an even amount of work and have similar positions and experience levels. Additionally, if someone gets stuck with a slow shift, this will not negatively impact their tips. One drawback to this structure is that it may not incentivize some employees to provide an excellent standard of service.

Percentage of Sales Based Tip Outs

In this structure, individual servers would tip out a certain percentage of their sales to additional staff. The percentages must be determined at your establishment, but it might look like 2 percent to the host, 5 percent to the food runner, and 8-10 percent to the bartender. A server with $50 in drinks sales would tip the bartender around $5. If they had around $250 in food sales, then $12.50 would go to the food runner and $5 to the host.

This encourages the restaurant staff to work as a team to provide better customer service. However, when shifts or slow or tips are low (possibly due to things outside a server's control), this might be unfair to servers relying more heavily on the tip than other staff.

Points-Based Tip Pooling

A point system for pooled tips is one of the more complex methods, with different types of employees awarded a certain number of points. The points correlate with the amount of responsibility (specifically in customer service), and the more points, the more tips.

Servers would likely have the highest points, say 15, while bussers and food runners may have 5. A bartender could have 10, while a host could have 7. The total amount of tips would be divided by the total amount of points and then would determine how much each point is worth in tips. You would multiply each employee's points by how much one point is worth.

How to Choose the Right Tip Payout Method For Your Business

The right tip payout method for your business depends on your service model. Here are a few common service styles and what should be considered when choosing a tip payment method.

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Tippy plays a game. Read more Adventures of Tippy comics.

Full-Service Restaurants

Servers at traditional full-service restaurants rely on tips more than any other restaurant concept. It's important to consider how many employees are in tipped positions, your staff's experience, the shift schedule structure, and projected wages with tips added.

In a fine-dining establishment with career servers, a shared tip pool might work well, as employees will know to support each other on the floor, and everyone will carry their weight.

Conversely, if your restaurant team's experience level varies, think through the impact of tip pooling. Veteran servers may resent sharing tips with rookies—but those new hires may appreciate the wage security from communal tipping and be inclined to stick around longer.

Quick-Service Restaurants

Tip jars (and their digital equivalents) are popular among workers at quick-service restaurants like cafes, pizzerias, and ice cream shops. It's common for the tips earned by the staff to be divvied up evenly after each shift, with all eligible employees taking a cut.

The only other decision the business needs to make is whether or not back-of-house employees are eligible for tips if they have any.

Fast Food Restaurants

Like QSRs, fast food restaurants might have a tip jar (or digital equivalent) for either counter workers or all employees to share at the end of a shift. However, most fast food chains like McDonald's don't allow their workers to receive tips. If your fast food restaurant is an exception, clearly define who is eligible to be tipped and if any role gets a more significant cut of tips than another.

Cafes or Breweries

These establishments may or may not have a BOH; a cafe may just have a crew of baristas that make coffee, heat up pastries, and do dishes themselves. A brewery likely has one or two “beertenders” pouring pints and clearing tables. In most cafes and breweries, a tip-out is a structure where tips are paid out every shift or per hour worked. Most employees working the FOH in these establishments have similar jobs and skills; therefore, some type of tip pooling structure makes the most sense.

Casual Dining Restaurants

At a casual dining restaurant, a server will probably take your order at the table, and there may be bussers and food runners assisting the front-of-house staff. Tips will likely not be as significant in this establishment as in a full-service or fine dining restaurant and will, therefore, not impact your servers' take-home pay. Servers will need to be paid a higher hourly wage, and then the business could distribute tips in a percentage-based tip-out structure.

Fast Casual Restaurants

Fast casual is an establishment between fast food and casual dining. Chances are you will probably order at the POS system with a cashier (as opposed to a server) and then sit and wait to be served by a food runner. Without the need for servers, a more even distribution of tips, like in total hours worked or tip-splitting structure, is the logical choice.

Fine Dining

At a fine dining restaurant, tipping is a considerable part of a server's take-home wages, and this is something that diners should be factored into the cost of their meal. At this establishment, servers receive a high level of training from fulfilling their job and likely having years of experience under their belt. Often, they have additional training in certain fields, such as wine, liquor, cheese, etc. Part of the fine dining experience is the atmosphere and the service, and servers play a large part in this. Career servers should be paid fairly for their expertise and take a large portion or all of the tips they earn directly.


Tipping is an essential part of dining out and employee compensation. To decide which tip-out structure is right for you, check your local labor laws, and talk to your team. Whichever way you go, one thing is constant: be sure that you are reporting all tips received by and distributed to your employees so that the appropriate taxes can be withheld, and communicate any changes to employees clearly. Want more? Check out other awesome restaurant tip resources at The Tip Jar.

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Ashlen Wilder
Ashlen Wilder

Ashlen is a freelance food writer and founder of Future Foodie. An online publication geared towards the future of food, dining and more. She has contributed to top publications such as The Spoon.