Tip pooling and tip sharing both put money in your team’s pockets, but they work in completely different ways. One collects everything into a central fund. The other lets individuals keep their earnings and tip out support staff directly.
The method you choose shapes your team’s culture, affects who earns what, and determines how much time you spend on calculations. Here’s how each system works, the legal rules you need to follow, and how to decide which fits your restaurant.
What is tip pooling?
Tip pooling involves collecting all tips into a central fund for redistribution among staff. The restaurant manages the entire process, from collection to calculation to payout. Tip sharing, on the other hand, involves individual staff sharing a percentage of their personal tips with support staff like bussers or food runners.
Pooling tends to promote teamwork because everyone earns from the same pot. Sharing rewards individual performance since servers keep most of what they earn. Pooling suits high-volume, collaborative environments like coffee shops or fast-casual spots. Sharing fits places where direct service drives higher tips, like fine dining.
How tip pooling works
With tip pooling, every tip from every tipped employee goes into one fund. At the end of a shift or pay period, management divides that fund based on a set formula. The formula might be based on hours worked, a points system, or assigned roles.
No one’s fighting over sections or hoarding tables. Everyone’s working toward the same goal because everyone benefits from the same pool.
Tip pooling example
Picture a busy Saturday night with two servers, one bartender, and one busser. Together, they collect $800 in tips. Instead of each person keeping what they individually earned, all $800 goes into the pool.
If you’re using an hours-based formula and each person worked eight hours, that’s 32 total hours. Divide $800 by 32, and you get $25 per hour worked. Each team member takes home $200, regardless of which tables they personally served.
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What is tip sharing?
Tip sharing works differently. Individual employees keep their own tips but give a predetermined portion to support staff who helped them during the shift. You’ll also hear this called “tipping out.”
The exchange happens directly between employees, not through the restaurant. A server who hustled for great tips gets to keep most of them while still compensating the busser who turned their tables and the barback who kept the ice stocked.
How tip sharing works
The flow is direct and one-way. Each server keeps their own tips, then gives a set portion to support staff at the end of the shift. The server keeps the remainder.
A server who provides exceptional service and builds rapport with guests sees that reflected in their take-home pay. Performance directly impacts earnings.
Tip sharing example
Your server finishes a Friday night with $300 in tips. Based on your restaurant’s policy, they tip out 3% to the busser, 2% to the food runner, and 1% to the host. That’s $18 total going to support staff, and the server keeps $282.
The server who earned $150 that same night tips out $9 and keeps $141. The difference in effort shows up in the difference in pay.
What is tipping out?
“Tipping out” and “tip sharing” can mean the same thing. Both refer to the act of a tipped employee giving a portion of their tips to support staff. You’ll see the terms used interchangeably.
Typical tip out percentages by role
Tip out amounts vary by restaurant, but here’s a common breakdown for reference:
- Bussers: Often receive 1-3% of a server’s sales or tips for clearing and resetting tables
- Food runners: Typically get 1-2% for delivering food from the kitchen
- Hosts: May receive 0.5-1% for seating guests and managing table flow
- Barbacks: Usually get 10-20% of the bartender’s tips for restocking and prep work
Document whatever works for your operation and communicate it clearly to your team.
Tip pooling vs. tip sharing key differences
| Feature | Tip pooling | Tip sharing |
|---|---|---|
| How tips are collected | All tips go to a central fund | Individuals keep their own tips |
| How tips are distributed | Redistributed by a formula | A portion goes directly to support staff |
| Who manages it | The restaurant calculates and distributes | Employee-to-employee exchange |
| Best environment | High-volume, team-focused | Individual service-driven |
Tip pooling works well in collaborative environments where teamwork drives the guest experience. Tip sharing fits better where individual server performance directly impacts tips.
Pros and cons of tip pooling
Advantages of tip pooling
- Promotes teamwork: Staff help each other instead of competing for tables or sections
- Consistent income: Employees earn more predictable amounts from shift to shift
- Reduces conflict: No more arguments over who gets the “good” section
- Supports BOH inclusion: Back-of-house staff can participate if you don’t take a tip credit
Disadvantages of tip pooling
- Reduced individual motivation: Top performers may feel penalized for sharing with everyone
- Potential resentment: Friction builds when some employees feel others aren’t pulling their weight
- Administrative burden: Tracking hours and calculating shares takes time
- Not ideal for all concepts: Doesn’t reward exceptional individual service
Pros and cons of tip sharing
Advantages of tip sharing
- Rewards individual performance: Strong servers keep more of what they earn
- Motivates support staff: Bussers and runners know their hustle impacts their pay
- Simpler to manage: Less complex calculation than pooling formulas
- Flexibility: Easy to adjust tip out amounts as roles change
Disadvantages of tip sharing
- Potential for inequality: Support staff income depends on which servers they assist
- Can encourage selfish behavior: Servers may hoard tables to maximize their own earnings
- Inconsistent for support roles: A busser’s earnings can swing wildly night to night
- Less transparent: Harder to ensure everyone tips out fairly
Payroll Implementation Checklist
Use this handy checklist so you don’t miss a thing.
Tip pooling laws you need to know
Tip laws vary significantly by state. Always verify your local requirements before implementing any tip policy.
Federal FLSA tipping rules
According to DOL Fact Sheet #15, managers and supervisors cannot participate in any tip pool or keep any portion of employee tips. Employers cannot keep tips from employees for any reason.
Tip credit rules affect who can be included in a pool. A “tip credit” allows employers to pay tipped employees a lower cash wage, with tips making up the difference to minimum wage.
Note: State laws may have stricter requirements. Check with your state’s department of labor before implementing any tip policy.
Does back of house get tips?
Whether back-of-house staff can participate depends on whether you take a tip credit:
- If you take a tip credit: Only traditionally tipped employees (servers, bartenders) can participate in the tip pool
- If you don’t take a tip credit: Back-of-house staff like cooks and dishwashers may be included
Your state may have different rules, so verify local requirements.
How pooled tips are taxed
For tax years 2025-2028, eligible tipped workers may be able to deduct up to $25,000 in qualified tips from federal income tax under the ‘No Tax on Tips‘ provision. However, tips remain subject to Social Security and Medicare taxes. Consult a tax professional for guidance on eligibility and claiming this deduction.
How to split tips between employees
Several calculation methods work for dividing tips. The right one depends on your operation.
How to divide tips by hours worked
- Total all tips collected for the shift or pay period
- Total all hours worked by eligible employees
- Divide total tips by total hours to get an hourly tip rate
- Multiply each employee’s hours by that rate
A server who worked six hours gets a larger share than one who worked four.
How to split tips by percentage
Different roles get assigned a set percentage of the total pool. Servers might receive 60%, bussers 20%, bartenders 15%, and hosts 5%. Document the percentages clearly and communicate them to everyone.
How to use a point system for tip pools
The points method assigns values to different roles based on skill or responsibility:
- Assign point values to each role (Server = 10 points, Busser = 5 points)
- Calculate total points worked (hours × point value for each employee)
- Divide total tips by total points to get a per-point value
- Multiply each employee’s points by the per-point value
This allows for a more nuanced distribution than a straight hours-based calculation.
How to choose the right tip method for your restaurant
Consider tip pooling if your service model emphasizes teamwork over individual tables. Fast-casual concepts, coffee shops, and high-volume businesses where everyone contributes to every guest’s experience tend to benefit from pooling. Restaurants that want to include BOH staff in tips (and don’t take a tip credit) also lean toward pooling.
Consider tip sharing if individual server performance drives the guest experience and tips. Fine dining or full-service restaurants with assigned sections often prefer sharing. Top performers who want direct rewards for their skills tend to favor this model.
Your tip method reflects your restaurant’s culture. Choose accordingly.
How to create a tip pooling policy
A written tip policy protects both your restaurant and your employees. It also prevents disputes before they start.
What to include in a written tip policy
- Eligible positions: Which roles participate and which don’t
- Distribution method: The exact formula (hours, points, or percentages)
- Timing: When tips are calculated and paid out
- Manager exclusion: A clear statement that managers and supervisors cannot participate
- Compliance note: Reference to federal and state labor laws
How to communicate tip policy changes to your team
Announce changes well before implementation. Hold a team meeting to explain the reasoning. Provide written documentation that everyone can access. Be transparent about how calculations work. Answer questions directly.
Clear communication builds trust. Surprises breed resentment.
A tip management tool that saves time
Manually calculating tip distribution eats up time you don’t have. 7shifts tip management software automates calculations, reduces errors, and integrates with your existing POS and payroll systems.
Connect your scheduling and time tracking data to calculate tip distribution based on hours worked—no spreadsheets or manual math required. Spend less time on calculations and more time running your restaurant.
Related watch: 7 restaurant payroll mistakes
FAQs about tip pooling and tip sharing
Do you legally have to share tips with coworkers?
Federal law doesn’t require employees to share tips. However, an employer can legally mandate participation in a valid tip pool or tip sharing arrangement as a condition of employment. State laws vary, so check local requirements.
Is tip pooling legal in all states?
Tip pooling is legal under federal law when implemented correctly. Some states have additional restrictions on who can participate or how tips are distributed. Always verify your state’s specific rules.
Can restaurant managers participate in a tip pool?
No. Under federal FLSA rules, managers and supervisors cannot participate in tip pools or keep any portion of employee tips for any reason.
How do restaurants handle tips for employees who work partial shifts?
Employees who work partial shifts typically receive a prorated share. In an hours-based or points-based system, their share is calculated based on the exact hours they worked during the pooling period.
Can a restaurant use both tip pooling and tip sharing at the same time?
Yes. Some restaurants use a hybrid model where servers pool their tips together, then tip out a percentage to support staff from that pool. The key is documenting the system clearly in a written policy.
Rebecca Hebert, Sales Development Representative
Rebecca Hebert
Sales Development Representative
Rebecca Hebert is a former restaurant industry professional with nearly 20 years of hands-on experience leading teams in fast-paced hospitality environments. Rebecca brings that firsthand knowledge to the tech side of the industry, helping restaurants streamline their operations with purpose-built workforce management solutions. As an active contributor to expansion efforts, she’s passionate about empowering restaurateurs with tools that genuinely support their day-to-day operations.
