Tip Pools in Bars and Restaurants: Good or Bad?

What is going on with tip pools? You recently started your first bartending job, and after that initial week of training under the watchful eye of the bar manager you’re going solo.

You look at your first paycheck stub and see a breakdown of the house’s weekly tip pool calculations. Something just doesn’t seem right.

You know that you made $480.00 in tips this week. That’s cash and credit card tips, and comes out to 17% of your total sales. Nice. But you notice that you’re only being paid 13%. What gives?

You’re in the house tip pool. Management has a tipping system where all tipped employees pool ALL tips, and then the “system” redistributes these tips between all employees.

This tipping pool may or may not include back-of-house employees. Cooks, dishwashers, expeditors – you name it.

Is this right? Is it fair? Why am I giving my hard-earned tips to people that don’t wait on customers?

You have also observed fellow bartenders milking the clock. Some are lazy and won’t help their fellow employees. Some servers won’t take extra tables. What’s going on here? It’s frustrating to say the least.

There is a lot of controversary surrounding tip pools in bars and restaurants. Good or bad – they’re here to stay.

Depending upon “House Policy,” these tip pools can be fairly complicated, so I’ll try and break down this whole tip pooling thing into easily digestible chunks.

What is Bar and Restaurant Tip Pooling?

Restaurant and bar tip pools are governed by the The Fair Labor Standards Act under the U.S. Department of Labor. More on that later.

What is Tip Pooling? All tipped employees combine the tips they have received during their current shift into a general pool. These tips are then redistributed among designated employees according to house policy and the law.

Many bars and restaurants have tip pools. The house policy is all over the place regarding how these pools function, and can be quite confusing for new bartenders and servers.

The tips received by employees would include all cash tips as well as tips added to a credit card purchase. All tips!

Depending upon State Law, and House Policy, back-of-the-house employees (cooks, dishwashers, expediters, etc.), may be included in this tip pool.

Bartender Only Tip Pooling

A word about how bartenders split tips in some places. Many restaurants and bars do not have a tip pool for servers – but they do for their bartenders.

Almost all of the bars and restaurants I have worked at through the years allowed bartenders to pocket their own tips. Especially the “Mom and Pop” type bars.

It is then the bartender’s responsibility to “tip out” to whomever may have contributed to the workload during the shift. Like a bar back. Or maybe the employees who set up your bar if you’re working banquets.

There are some exceptions. Some bars may have their bartenders throw their tips in one jar. Then they split the tips by hours worked. A fairly simple process, and it’s more of an informal type of tip pool.

Many banquet type bars have the same situations as regular bars, above, but sometimes they have “built in” tips. In other words, if the party spends $2000 on drinks, the house will add anywhere from 15% to 20% to the bar tab.

Nice, and all the bartenders will share in that built in tip – but keep their own cash tips. Again, house policy is all over the place depending on the bar.

Of course, there are exceptions to this sort of tipping policy. Many hotels will combine all of these “built in” tips and redistribute them between servers and bartenders.

Is Tip Pooling Legal in Bars and Restaurants?

The short answer is “Yes!” The Fair Labor Standards Act governs everything about bar and restaurant tip pooling. In just the last few years, many updates and changes have been made. Some of the highlights:

• Tip pooling in bars and restaurants is allowed in most cases
• Supervisors, managers and owners can no longer share in tip pools
• Back-of-the-house (cooks, dishwasher, expediters, etc.), may be included in tip pools
• Owners may incur hefty penalties for violations of tip pool and tip credit laws
• States do have some say – mostly regarding tip credits and back-of-the-house employees sharing in tip pools
• Employers must notify all employees if they are required to be part of a tip pool

Tip Credit will also be a factor in how the tip pool is distributed. Again, this subject is beyond the scope of this article, but you’ll get a fairly good idea of how it works below.

A brief word about how “Tip Credit” works thanks to The SMB Guide:

Currently, there are eight States and Territories that prohibit tip credit:

• Alaska
• California
• Guam
• Minnesota
• Montana
• Nevada
• Oregon
• Washington

Some of the above States allow tip pooling. Some don’t. And the tip credit throws a very complicated wrench into the mix of things.

I am not an Attorney, so have kept it brief here just pointing out some of the current laws. Most bars and restaurants will define their tip pooling policies, if they utilize them, with all new-hires during the on-boarding process. It’s the law.

Tip Sharing vs. Tip Pooling – There is a Difference

With new laws in place allowing the sharing of tips with back-of-the-house employees, we now have to redefine what tip pooling is.

Tip Pooling: All tipped employees combine their tips and then redistribute these tips only between themselves.

Tip Sharing: Combining tips from all tipped employees and then redistributing these tips between all employees – tipped or not tipped. In other words, back-of-house employees are now beneficiaries of front-of-house tips.

The above terms are commonly used interchangeably, but there is a definite difference. Bartenders and servers certainly know the difference!

Tip Pooling Pros and Cons

Like any bar and restaurant house policy, there are pros and cons. Tip pooling certainly has its advantages in some cases, but may create a few problems in some establishments.

Tip Pooling Pros:

• Teamwork. Everyone works together towards one common goal: A great customer experience. Theoretically, this results in higher tips all the way around.
• Less focus on the “Good Sections.” Every server and bartender knows there are “good sections” and “bad sections.” Busy sections. Slow sections. Booths vs. tables. Busy end of the bar and the service window. With tip pooling, sections are now less of an issue.
• Transferring Tables. Going on break? Two tables of friends decide to join together and eat? Not a problem any longer – all tips are pooled.
• No Waiting For Tips at the End of the Shift. Shift is over, it’s now time to go home. No more waiting around to collect that tip from your last remaining table.
• Closes the Wage Gap. Overall wages are now more evenly distributed throughout the entire bar and restaurant.
• Consistent Money. Employees can now count on a more consistent paycheck. It may be a bit less, but it certainly helps with personal budgeting issues.
• Bonus For High Producers. Only if implemented through house policy. Offering incentives to high producers can help alleviate their sense of being “short-changed.”
• Incentivizes back-of-house employees. Cooks, dishwashers, and others, now feel like they are more a part of the team. And, additional wages in the form of tips is a great incentive to work harder.

Tip Pooling Cons:

• Resentment. High producers build resentments towards less than able employees. Many employees have a very high level of performance – and resent the slackers getting a portion of their hard-earned tips.
• The Best Make Less. There’s no getting around it. The fastest, more experienced employees take a pay cut.
• Dishonest Employees. Unfortunately, some servers and bartenders will not report all of their cash tips. Cash tips are calculated differently – there may be some safeguards in place.
• Dishonest Managers and Owners. Really, who is monitoring all of this tip money? Many employees distrust the “system,” and feel like they are getting ripped off.
• High Performers Won’t Apply. Yes, the word gets out. People in the food and beverage industry talk. Exceptional servers and bartenders will go where the most money is.
• Sneaky, Unfair Distribution. Are managers illegally getting a cut? Are some favored employees receiving a bigger piece of the pie? Why do dishwashers get part of my tips?
• Seniority Takes a Hit. Long-time employees get better shifts and sections. Usually. The better shifts will probably stay in place, but sections no longer matter.
• Slackers Can Hide. And they’re very good at it. Does management reveal the sales figures of all tipped employees? The percentages in tips?
• Apathetic Management. Tip pooling is controversial – to say the least. High producers voicing their concerns many times get a deaf ear.
• Management uses it to lower pay. There’s already “tip credits” is some states. With the new tip pooling laws, management may decide to lower (or freeze), back-of-house wages.
• Hidden Disbursements. Who, really, is in the tip pool? Is everything on the up and up?

As you can see, there are many pros and cons to the tip pooling question.

As mentioned in the above “Con” section, one of the biggest drawbacks to having a tip pool is that experienced bartenders may not apply.

During the bartender interview process, they will try to ascertain whether or not the bar or restaurant has a strict tipping pool policy.

So, how do bartenders and servers (any tipped employee for that matter), really feel about tip pools? That’s up next.

Are Bartenders and Servers In Favor of Tip Pools?

Opinions are all over the place when it comes to tip pools. From my very unscientific research, it appears that most front-of-house employees dislike it and back-of-house employees generally like it. Go figure.

The exception is banquet bartending where tip pools work rather nicely. But banquet departments have kind of a “hybrid” system that works well in that type of situation.

I know that I went over the pros and cons of tip pooling systems earlier, but here is a list of the comments I’ve heard through the years:

• Who’s in control of all the money?
• Are we supposed to reveal our cash tips?
• Will the busser give me the tip left on the table?
• Lazy people are making the same amount of money that I am
• Seniority means nothing now
• Cooks are getting some of my tips so management can lower their wages
• I’m applying at places that have no tip pools
• It is no one’s business how much I make in tips
• I tell my customers to tip me in cash
• I tell my regular customers to leave a cash tip – and not on the credit card

Of course, most of these tip pools will simply calculate a percentage of cash sales and leave it at that.

For example, my total sales were $3500.00 this week. $2500 in credit card sales. $1000 in cash sales. I made 17% of credit card sales in tips.

Management will calculate your tip percentage on cash sales the same as what the credit card sales show. There’s more to it than that – but you get the picture.

Or, they’ll simply say that for all cash sales – 10% is automatically put into the tip pool.

I know it’s a bit confusing, and bars and restaurants are all over the place in calculating tips.

How Are Tip Pools Managed?

There are so many different types of “systems” (and software), designed to collect and redistribute tips that I won’t go into any great detail here. I could write a lengthy post on this subject all by itself.

Most tipping pools are calculated using either a points system or an “hours worked” system. Many systems combine both, and it can get very confusing.

Some tipping pools will go by percentage. For example, maybe the bussers receive 10% of the night’s tip pool and bartenders receive 15%.

Management will have some sort of software, or template, that calculates this mess.

Final Thoughts on Tip Pools in Bars and Restaurants

As you can see, formulating a tip pooling system in a restaurant or bar is not an easy management decision.

I have written more about how much money bartenders can make in a good place. Experienced bartenders will always gravitate towards a bar where they can make the most money.

For brand-new bartenders, you really don’t have the luxury of turning down a bartending job simply because of their tip pooling policy. Get some experience, and then make an informed decision on future employment opportunities.