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Guide to Tipping for Restaurant Managers

Guide to Tipping for Restaurant Managers

Picture of Nate Lozier

Nate Lozier

Understanding the intricacies of tipping is essential for restaurant management, as it represents a nuanced yet integral aspect of the service industry.

In the restaurant industry, the concept of tipping remains both a cornerstone and a mystery. For restaurant operators navigating the dynamic landscape of both customer and employee satisfaction, understanding the nuances of tipping has never been more important.

Tipping is a cultural practice deeply rooted in the dining experience, yet its intricacies often elude even the most seasoned restaurateurs. In this article, we’ll discuss some of the complexities of restaurant tipping, exploring its impact on your establishment’s bottom line, staff morale, and overall customer relations. We’ll also offer some of our own “tips” and best practices to help you manage this integral part of running your restaurant as well as the ways restaurant software can help automate tipping.

Tipping At A Glance

While tipping has spread to many service areas over the last few years, it’s always been a key part of compensation for restaurant waitstaff. The average tip for restaurant dining in the United States hovers around 15-20% of the bill. However, this can vary based on factors such as the type of restaurant, the region, and the perceived quality of service. Studies show that customers are more likely to tip higher when service is personalized, prompt, and attentive. 

Part of tipping is also psychological. The prevalence of electronic payment methods has led to an increase in tipping percentages, as customers are prompted with the option to select preset tip percentages when settling their bills. While this can increase tips, it’s important to strike the right balance in your recommended tip percentage, as the prevalence of tipping has left some customers with what’s been called “tipping fatigue”.

Tipping is deeply ingrained in many cultures as a way to show appreciation for service, but there is also some debate over the proliferation of tipping into other professions. This poses a complex interplay between tradition, economics, and societal expectations not just in restaurants but across the service industry.

Tipped vs Non-Tipped Employees

Tipped employees include servers, bartenders, and other front-of-house staff. They typically receive a lower base wage with the expectation that tips will supplement their earnings. In the United States, the federal Fair Labor Standards Act (FLSA) allows employers to pay a lower minimum wage to tipped employees, provided that their total earnings, including tips, meet or exceed the standard minimum wage. Tipping, therefore, becomes a significant part of the income for these workers, and the amount can vary based on factors like the type of establishment (i.e. service area), location, and level of service.

Non-tipped employees represent the rest of your restaurant workforce – kitchen staff, hosts, management/admins, etc. – who do not rely on tips as a substantial part of their income.

In recent years, some restaurants and businesses have experimented with alternative models, such as eliminating tipping altogether and instead adopting a service charge or raising menu prices to ensure fair compensation for all employees.

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Taxes on Tips: Accounting for Tipped Employees

Managing taxes and accounting for tipped employees in a restaurant requires a thorough understanding of applicable laws and regulations. While restaurant software has automated many of these processes, restaurant operators should familiarize themselves with some of these regulations. Here are key considerations for restaurant managers in handling taxes and accounting for tipped employees:

By staying informed about the legal requirements, implementing sound record-keeping practices, and working with restaurant accounting professionals, restaurant managers can navigate the complexities of taxes and accounting for tipped employees effectively. This is one area where restaurant payroll and accounting software can be helpful, simplifying these complexities into one system that tracks taxes and payroll and removes much of the manual labor (and potential for human error) from these processes.

Tipping is deeply ingrained in many cultures as a way to show appreciation for great service, but there is also some debate over the expansion of tipping into other professions. This poses a complex interplay between tradition, economics and societal expectation not just in restaurants but across the service industry.

Restaurant Service Charges

Restaurant service charges are an additional fee applied to the total bill to cover the costs associated with providing a range of service to patrons. These charges are distinct from tips, as they are typically mandatory and predetermined by the restaurant, whereas tips are discretionary and left to the discretion of the customer. The inclusion of service charges has become a debated topic in the hospitality industry, sparking discussions on transparency and the impact on both customers and staff.

Types of Restaurant Service Fees

There are various types of restaurant service charges, each with its own implications and considerations. One common type is the automatic service charge, where a fixed percentage is added to the bill regardless of the size of the party. This approach can aim to ensure that service staff receive a consistent income or can even be added to for other employee benefits like health insurance.

Another form of service charge is the discretionary service charge, where the customer has the option to include a predetermined percentage as part of the final bill. While this provides diners with the freedom to reward exceptional service or express dissatisfaction through their tip, it also introduces a level of uncertainty for service staff, as their income may vary depending on individual customer choices.

Third-party delivery apps and an increasing number of restaurants also include service charges for delivery. Part of this charge typically goes to the delivery driver, but it also goes to a wide range of operational expenses.

Some establishments opt for a service-inclusive pricing model, incorporating service charges into menu prices to eliminate ambiguity for customers. This approach aims to create a more transparent dining experience, but it may lead to higher menu prices, potentially deterring price-sensitive customers. On the other hand, it may also attract some patrons who want to support your restaurant because they align with these values. This is one of many instances where it’s important to understand your dining demographic and which service charges may not deter them from returning.

Ultimately, the choice of service charge type can significantly impact the dynamics between customers and restaurant staff. Striking a balance that considers both the financial stability of the establishment and the satisfaction of diners is crucial for fostering a positive dining environment. As the industry continues to evolve, finding innovative and fair ways to implement service charges will likely remain a part of many restaurant checks.

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What is Tip Pooling in Restaurants?

Tip pooling is a practice where tips collected by a group of service staff, such as waiters, bartenders, and sometimes kitchen staff, are combined and then redistributed among the team. This collaborative approach to tip distribution is designed to promote teamwork, incentivize shared responsibilities, and create a more equitable compensation system within the restaurant or establishment.

Pros and Cons of Tip Pooling

One of the main advantages of tip pooling is that it fosters a sense of unity among staff members. By pooling tips, employees are encouraged to work together seamlessly, ensuring a smoother and more cohesive dining experience for customers. This approach can also help alleviate the disparity in earnings among various roles within the establishment, ensuring that kitchen staff, who may not traditionally receive direct tips, are included in the reward system.

However, the implementation of tip pooling can be a complex process, and its success depends on fair and transparent policies. Establishing clear guidelines on how tips are distributed, determining the percentage allocated to each role, and addressing potential challenges, such as staff turnover or varying levels of contribution, are critical aspects of effective tip pooling systems.

Tip Pooling Laws

The Fair Labor Standards Act (FLSA) provides guidelines on tip pooling. According to federal law, tips are considered the property of the employees who receive them, and mandatory tip pooling is allowed among customarily tipped employees, such as waitstaff, bartenders, and bussers. However, federal regulations also prohibit employers, including management, from participating in or benefiting from tip pools.

Some states have additional regulations that further refine these guidelines, specifying the permissible participants in tip pools and the extent to which tips can be shared with non-tipped employees, such as kitchen staff. It’s crucial for restaurant management to be aware of and comply with these regulations to ensure fair and legal tip pooling practices within the bounds of the law.

Today’s restaurant management software has made tip pooling and redistribution a streamlined process for both management and employees. This eliminates outdated spreadsheets and tip calculators and automates the entire process. Managers can customize which employees are included in tip pools and integrate with their POS and accounting tools.

Tip Splits

Tip splits refer to an arrangement among a group of employees to collectively share the tips they receive during their shifts. Unlike traditional tip pooling where tips are combined into a common pool and redistributed, tip splits involve a more targeted sharing mechanism. In a tip split scenario, employees voluntarily agree to distribute their tips among themselves based on certain criteria, such as collaboration, teamwork, or shared responsibilities. The understanding behind tip splits is often grounded in mutual cooperation and a recognition of collective efforts during a given work period.

Tip Shares

Tip sharing involves the redistribution of tips to non-tipped employees. This is a common practice in full-service restaurants, where wait staff share a portion of their tips with back-of-house employees like kitchen staff, bussers, hosts, etc. Tip sharing is a way for waitstaff to show appreciation for their non-tipped counterparts to build solidarity among the team and encourage everyone to provide great service to customers together.

The Role Of Restaurant Software

Restaurant software plays a pivotal role in enhancing the tipping process through automation, offering several advantages to both management and staff. One key feature is the ability to tailor automated tip rules to fit the specific needs of your restaurant. Managers can save time by setting tip distribution parameters and easily modify them as the business evolves. This not only streamlines the tip-sharing process but also eliminates the potential for human error.

Software also plays a role in automating payroll and accounting purposes. Existing restaurant software ensures that relevant data, including point-of-sale (POS) transactions, tip rules, and payroll information, is automatically pushed to the appropriate departments. This seamless integration minimizes the need for manual data imports and exports, contributing to more accurate and efficient payroll processes.

Beyond streamlining operational tasks, restaurant software contributes to driving performance, accountability, and employee retention. By formalizing tip management and monitoring, restaurant software allows management to identify top performers effortlessly. This information can be leveraged to motivate and strategically schedule employees, leading to increased job satisfaction and performance.

Wrapping It Up

Today’s restaurant landscape is evolving quickly, and navigating the complexities of tipping is both an art and a science. Restaurant managers are tasked with not only understanding the cultural intricacies of tipping but also with managing the financial aspects that impact their establishment’s bottom line, staff morale, and overall customer relations. The key to success lies in embracing innovative solutions and best practices that enhance the tipping experience for both customers and employees.

By leveraging advanced restaurant software, restaurant operators have the power to revolutionize their approach to tipping. The automation capabilities offered by these tools allows operators to tailor tip distribution rules to fit the unique dynamics of their business. This not only saves time but also eliminates the potential for human error, setting the stage for efficient growth.

Operators have the opportunity to lead the way in transforming the tipping experience. Embrace technology, stay informed about industry trends, and create an environment that not only meets customer expectations but also supports the well-being of a dedicated staff. In this dynamic landscape, your restaurant has the potential to create a lasting positive impact on both your business and the broader hospitality industry.

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