Tips. We love them. We hate them. We can’t live without them.

No, really, we can’t. Tips make up the majority of a tipped wage workers’ paycheck. Each state has different tip laws which makes it difficult for those of us in the service industry to determine our income. For instance, I made $11 an hour before tips and tax when I worked in Oregon, but then I made $5 an hour working in New York. This meant I had to do math to calculate the hours I’d need to work once I had some idea of the kind of tips I could expect at my place of employment.

If there’s two things I’ve learned about tips: it’s that a good tip out model is critical to employee happiness and retention, and both employees and employers need to be aware of tip models and open to the conversation around it. After all, it’s your money.

Let’s start off with the most successful model I’ve seen in terms of general employee content: the pooled house.

The Pooled House

The restaurant or bar operates on a point scale and divvies up tips depending on direct action. For instance, bartenders and servers, those who interact most with the guests and do the majority of the customer work get a higher distribution of points. If the kitchen is included in part of the pooled house, they get a smaller distribution. Likewise for those who run the cash register, but aren’t directly making drinks, engaging guests beyond small talk and payment exchange.

Each position has its specific needs and knowledge requirements. The more points go to the more laborious and knowledge requiring areas. This is often why cashiers and back of house staff are paid a much higher hourly or non-tipped wage. I’ve never worked in a restaurant or bar where we’ve made enough in tips that if all employees were tipped wage that we’d also have equitable enough tip distribution to make money to live on.

In some states, like New Jersey and Georgia, employers are only legally required to pay $2.13 an hour. However, if tips don’t balance out that $2.13 to $7.25 an hour at minimum, the employer has to pay more to the employee so that it does balance out. This is why it matters that everyone is educated and aware about their state’s tip laws and their establishment’s tip policy.

Manager and industry veteran, Cassandra Ericson, shared why the point system tip model has worked for many businesses, “All credit card tips get put on checks. Cash is divvied up differently too. Having a pool, we don’t have to do a cash out. We balance the drawer. One manager does the drawer and makes sure everything is declared properly, and it’s all checked through the accountant. By doing it this way, our checks are significantly better. For me, it allows me to be better at seeing the actual money I’m making and I’m better at budgeting.”

It’s not just small companies for whom the pooled house works. I’ve worked in large establishments where the pooled house point system works. I’ve also worked in areas where the restaurants have had a split tip out: bartenders were a pooled house while servers kept their own tips, but had to tip out to the bar on drink sales and other percentages to busboys and food runners. For these larger businesses, both of these systems worked due to the high volume and need for extra hands on board.

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The Unpooled House

Ericson also worked at other locations where everyone kept their own earned tips and had to tip out according to food or beverage sales. A downside to this model is, sometimes, certain sections for servers or bartenders might be less occupied or the business has a slow night. That results in cuts, and, in the “each for their own” model, can and often does see people in the service industry holding down multiple jobs to make ends meet.

Alternatives to Tip Out

There’s another model that has emerged recently, the employee-owned model, that I’ve been most curious about. This model copies on the tech startup mentality in a lot of ways. Find staff who really get behind the concept of the restaurant and bar and build in equity (part-ownership/stock) in the company as part of their pay, engaging them and training them to step in and take over. A more long-term career move.

But, with the high turnover in the service industry coupled with the oversaturation of the market, it can seem like dangerous waters for service staff who want to know the money they’ll be making now. Or who don’t want to feel tied down. We’re taught to keep an eye out for “something better to come along”, and, in an industry where the owners can just close the business on you with little to no repercussion from the law unless employees’ file a ton of paperwork that often takes months to process (I’ve gone through this—it’s awful), it’s asking a lot.

Basically, you’re signing up for a long-term commitment. Invest in blood, sweat, and tears and stick it out for a few years, and, when the restaurant starts being profitable (if it does), you’ll see an increase in your paycheck.

This model can and does work, as it did for New Belgium Brewing Company, but I haven’t seen it come to fruition in a similar fashion in a restaurant or bar. That doesn’t mean it isn’t out there, and if you or your restaurant/bar are employee-owned, I’d like to hear from you.

Do you have a tip out model or unique income model you’d like to share that worked or didn’t work? Please feel free to reach out in the comment section below.

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