Tip Outs vs. Tip Pooling: Which Is Right for Your Restaurant?

How you handle tips matters—not just for compliance, but for team morale. Get it wrong and you'll breed confusion and resentment. Two common approaches are tip outs and tip pooling, and understanding the difference is key.

In my pizzeria, we do not currently employ a tip out strategy, because we operate in a hybrid mode where some employees keep 100% of their tips earned (our delivery drivers) and our other employees get a share of other tips based upon their weighted hours worked for that day. It's important to understand that in some staffing models, a tip out structure is more typical - and to maintain a healthy culture you will want to be sure to consider if this is a correct model to adopt. Choosing the wrong method (or using them together poorly) can lead to confusion and resentment between your team members.

What Is a Tip Out?

So, what exactly is a tip out? A tip out is when a server (or bartender) gives a fixed percentage of their tips earned to their supporting roles. Typically, restaurants calculate the expected tip out as a % of sales or a % of tips that server or bartender directly served and received. The server will keep the remaining tips, and their income potential continues to be tied to their individual performance in serving customers.

For instance, if a server receives $200 in tips, tips out 5% to the bussers ($10), and 2% to the host ($4), the server would keep $186.

What Is Tip Pooling?

In a tip pool, all tips will go into one pot and then be redistributed to team members. Typically, this is done based on hours worked and / or a weighting system. Everyone in the pool has their potential earnings thus connected directly to the guest experience being provided. For a step-by-step walkthrough of the math, see our guide on how to calculate tip pooling, or try our free tip pool calculator to see how different weights affect distributions.

Key Differences

There are some key differences between a tip out and a tip pooling strategy. In tip outs, individual accountability remains with the server / bartender, and their supporting roles get a predictable cut as well (bussers, hosts, etc). In a pool, the team is more fully accountable to the outcomes, and everyone participates equally (or by weighting). When you calculate your tip out obligations, the math will occur at the individual (e.g. the server), whereas the tip pool happens across the shift.

When Tip Outs Make Sense

Tip outs often make sense in full service restaurants with clearly defined roles. It can be a helpful strategy when you want servers to remain motivated by their individual performance and when those individuals are supported directly by team members. It is often used in higher-end restaurants, where service quality can truly vary by server.

When Tip Pooling Makes Sense

Tip pooling is often found in fast-casual, counter service, carryout/delivery operations - where roles blur and everyone is chopping wood together. This is the case at Pizza Harbour, where we don't offer dine-in service today though do a strong delivery and carryout business. In some restaurants with small teams, it is also common that everyone serves guests collectively, and your table vs. my table mentality is just not applicable.

Hybrid Models

There are also a variety of hybrid models to consider as well. For instance, in some cases servers would tip out to support staff and then the remaining server tips would be pooled and distributed amongst servers only. This model is sometimes found in restaurants that need teamwork among the servers, and yet compensate the shared supporting roles separately. This can get quite complicated quickly - and thus clear documentation and effective training is critical.

Common Mistakes

There are a few common mistakes to watch out for:

• Inconsistent tip out percentages: If server A is tipping out 2% but server B is tipping out 3%, inconsistency is generally always a bad idea.
• Basing on sales vs. tips: Sometimes tip outs are based on sales rather than on tips collected. Sales can be more predictable and account for cash tips received, though can often leave the role receiving the direct tips having to over payout.
• Not documenting: If you do nothing else today, review your policy and ensure it matches what is happening in your store!
• Changing rules without notice: Don't change the rules without telling your staff.
• Legal compliance: Don't forget that tip outs are generally still subject to the same legal restrictions as tip pools (no manager participation, back of house may be unable to participate if tip credit is taken, etc. - review your policy with your attorney to remain compliant in your jurisdiction).

How to Decide for Your Restaurant

As you think through how your restaurant should work, there are a few questions to ask yourself:

• Are your roles clearly separated, or does everyone pitch in as needed?
• Are you looking to create individual or team based incentives?
• How complicated are you willing to make the math to figure a shift out?
• What does your team prefer?

There is no single correct answer here, it will come down to your restaurant's unique operational goals.

Making It Manageable

Whatever you end up deciding, it is critical that you document it clearly (and have your attorney review it for compliance to your jurisdiction's labor laws). Every manager needs to clearly understand the policy, and what is expected of them to ensure it is followed consistently every shift. And don't forget that tips are part of your total labor cost picture—here's how to track your labor cost percentage daily. If you'd like to streamline tip calculations, AnchOps handles both models and does the math automatically. If you're running Toast, we wrote a step-by-step guide on how to automate tip pooling with Toast POS. Running delivery through First Delivery with a mix of in-house and third-party drivers? That adds another layer — read our guide on managing delivery tips with First Delivery and Toast POS. One more thing to factor in: credit card processing fee deductions from tips — the rules are specific and vary by state.

Wrap Up

Both tip outs and tip pools are solving the same problem, albeit a bit differently. You need to pick the one that best suits your service model and team culture, get it documented, and keep it consistent. And if you're looking to streamline other aspects of your operations, see how smart scheduling can save you even more time—and avoid the 5 scheduling mistakes that cost restaurants money.