We can all agree on one thing – as a business with tipped employees, it can often be confusing to keep up with your tips. From dividing up tips by which employees were working, how many hours were worked, and based on points allocated for different positions, calculating tip earnings requires a thoughtful and organized system. It is easiest when business owners have a centralized place to compile all of this information. A Tip Pooling Calculator makes this process seamless and straightforward, by calculating it all for you. This Tip Pooling Calculator allows you to track which employees worked and for how long, and it allows you to assign different weights to each position at your business. After inputting your data, it painlessly divides up the tip total among employees based on these factors.
What is Tip Pooling?
There are several terms that are used when it comes to dividing up tips. They are often used interchangeably, but there actually are some important distinctions between them.
- Tip Pooling is permitted by the Department of Labor and can be enforced by the employer for pooling tips among tipped employees. However, it can also be enforced to include non-tipped employees in the tip pool if tipped employees are paid the full minimum wage. This means that if the employer wants to include non-tipped employees in the pool, tipped employees can not legally have a tip credit.
- Tip Sharing is when employees voluntarily decide to share their tips with other members of the staff, including non-tipped employees.
When using these in practice, employees contribute some or all of their earned tips to the business. The tips are then divided up among the employees based on criteria decided by the employer and agreed to by the employees.
What are the legal rules surrounding Tip Pooling?
Employers are not allowed to participate in the tip pool. This means that business owners, and sometimes managers and supervisors (depending on the state), are not legally allowed to benefit from this arrangement.
Additionally, tip pooling laws differ heavily from state to state. Federally, tip pooling is permitted under the Fair Labor Standards Act (FLSA), but states take different stances on its regulation. States like California regulate tip pooling more heavily, while states like Minnesota flat-out ban it. Because of these variances, business owners need to be fully aware of what is legal within their state so they can avoid any issues with the law. Employees should also be well-versed on their state’s regulations, so they can be sure that employers are in accordance with the law and generally understand the tip pooling system.
What types of businesses use tip pooling?
Tip splitting is very common in restaurants especially, but general pooled tipping and tip splitting can also be used in other settings, like car washes, valet services, and among hotel bellhops. Basically anywhere that receives tips could potentially use a tip splitting or pooling system.
How do customers leave pooled tips?
Customers often contribute pooled tips without even knowing they are doing so. Tips are individually given to different members of tipped-staff and then employees will group and divide up the tips behind the scenes. On the other hand, tips could be left in a tip jar that is designated for everyone, which is common at cafes and quick service restaurants. Lastly, businesses may opt for a virtual tip jar, like eTip, which does all the work for them. eTip allows customers to give tips in an app-less, contact free and cashless way—which opens the door for businesses to receive much more money in tips. Even better, after eTip collects tips, it divides them all up among staff members and distributes the money accordingly.
How are pooled tips divided between employees?
One thing that is important to keep in mind when dividing tips is that employees often work varying numbers of hours. As a manager, it wouldn’t be fair to allocate the same amount of tips to someone who worked 3 hours one night as someone who worked 7 hours. Because of this you’ll want to factor hours worked into your calculations.
To split tips based on hours worked, add up the total amount of tips and then divide that number by the total hours worked by all employees. Next, multiply the resulting figure by the hours an individual employee worked.
- Total tips=$600
- Employee 1 hours worked = 9
- Employee 2 hours worked = 10
- Employee 3 hours worked = 6
- Total hours worked=30
9 x 20 = $180
Employee 1 earned $180 in tips since they worked 8 hours.
10 x 20 = $200
Employee 2 earned $200 in tips since they worked 10 hours.
6 x 20 = $120
Employee 3 earned $120 in tips since they worked 6 hours.
Another common way that tips are divided is through a point system for different positions within the business. This allows you to assign weights and allocate more tips for certain positions. For example, in a restaurant it might be necessary to have servers receive a larger share of tips than busboys.
Server = 30 points
Bartender = 15 points
Busser = 5 points
Total points = 50
- Divide the total number of tips ($1,000) by the total number of points (50) and you’ll get the worth of each point, which in this case is $20.
- Multiply each staff member’s number of points by $20.
- This results in the server receiving $600, the bartender receiving $300 and the busser receiving $100.
Should your business pool tips?
Splitting tips can be a headache if not done properly and in an organized manner. It is essential that if you decide to split tips, you review the Department of Labor’s laws and ensure that you are in compliance with them. Another important piece is communication with your staff. Money is a sensitive subject, and your employees will certainly want to know how their tips are being divided and be assured that it is being done correctly. Especially if you’re partaking in Tip Sharing, which is totally voluntary, having strong communication with employees is key.
Pros of splitting tips
While many businesses do not split tips, It can still be a great decision for your business. Especially during times when certain employees are getting more work than others—like delivery workers versus servers—splitting tips can help all employees earn more stable income. Splitting tips also helps to even out other types of discrepancies that happen when earning tips, like when a server receives a table that tips an extremely low amount.
Cons of splitting tips
On the other hand, splitting tips might make some employees feel robbed of their reward for their hard work. This could lead employees to put forth less effort in making a positive impact on the customer. However, there is an ongoing debate of whether splitting tips actually makes employees more or less productive.
Overall, splitting tips can help all employees feel valued, more secure in their earnings, and can lower the pressure associated with earning tips within your team. If you decide that splitting tips is the right decision for your business, use our Tip Splitting Calculator to make the process a no-brainer.
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