Managing Tip Distribution in a Restaurant

[LukeNieuw]

Hi Guys,

How is everyone handling Tip Distribution at their Restaurant? By that I mean servers tipping out Bartenders, Kitchen, Dishwashers, Managers etc.. I've read that most restaurants have their servers tip 3% of sales to Kitchen and 3% to the Bartender. 

Tips are such a hot topic....

Currently our servers were tipping out 5% of Food Sales to the Kitchen. Our servers make their own drinks so there is no Bartender to share with. They run their shift report at the end of the day and collect any Credit Card Tips they're owed in Cash from the Cash Register (another team member verifies with them and signs). They submit their shift report plus any Cash owing to the Restaurant at the end of their shift. Make Sense?

I have their shift report broken down by sales category so it's easy to make the calculation but I noticed it's based on Gross Sales and doesn't account for any discount or loyalty reward that was applied. So in that respect they could end up tipping out on $ they never collected.

Should we make the % smaller and go by total NET sales? 

Does anyone have any suggestions or a better way to handle this??

Thanks in advance! 

[sugarlab]

I would think to go by NET sales; that's what I use for the majority of our reporting since it factors in discounts or rewards used. I own a bakery so I don't have the same tipping set-up that a restaurant would so I can really speak to that. 

[AnnaB]

We pay out credit card tips once a week. Then add the amount paid to gross pay for tax withholding purposes ( otherwise you're in danger of having to pay their taxes) .  NO ONE take a money from the register.  

[LukeNieuw]

So you add their CC Tips directly to their pay?

[lenjobakes]

We also pay out credit card tips weekly (or bi-weekly...or monthly. My staff is gracious with me.) and no one takes money from the register. We don't add tips to their pay, but I do keep track in case the gov comes looking. We are a bakery, though so they might not be as interested as if we were a bar.

[LukeNieuw]

Thanks @lenjobakes 

Do you pay them out by cheque or cash? and do you withhold the CC fees?

[lenjobakes]

We pay out in cash. In Ontario (which I think is where you are too?) you can only withhold the greater or 1.5% of the tip or the pro-rated amount that you're charged for that specific transaction. And only for credit cards - not debit. So we just do 1.5% because ain't nobody got time to be going through individual transactions.

I'm sorry I can't speak to anything else specifically...if it's helpful, when I lived in NZ we pooled tips. The kitchen got paid out a percentage (no idea how much, if I'm honest) and then the rest got split with everyone on shift. Managers did it all and we got a little envelope of cash on Mondays. Same-ish sort of thing happened when I worked in a café here in Canada too. We didn't need tips to live, they were just fun monies so the one week delay was okay.

But I would probably do tips based on net, but keep tip out to the kitchen the same. Kitchens deserve it. (From someone who has worked both BOH and FOH.)

Am I crazy, though? Doesn't Square base tips off the total pre-tax/pre-discount amount?

[LukeNieuw]

I am in Ontario too so that's very useful information! Thank you! and you're right, there's no chance I'm going through every single transaction lol

Thanks so much for your response this is all great stuff!

Am I crazy, though? Doesn't Square base tips off the total pre-tax/pre-discount amount?

---

you mean at the transaction level? as far as I know the ez tip % buttons are based off the amount the customer is paying. You can set the tip %'s to calculate by pre-tax or after tax but it wouldn't account for any discount/reward being applied. Unless maybe I'm crazy....I'm gonna double check haha

[vhovar]

@LukeNieuw I'm a little puzzled by your question. The Square tips reported are based on what the customer adds to their credit card payment. They aren't based on sales, net or gross. So, tipping out should never exceed what was paid in (it DOES exceed the cash the business realizes because of the cc fees).
As a side note, you may want to consider taking a % off the tips taken our of the drawer to cover the CC service charge. This is an allowable amount to hold from the tips being paid to your employees. Otherwise, the business is paying to allow your employees to take the full tip amounts.

If you are talking about using the % of food sales to split the tips then I would do that based on the gross sales. The reason is that the amount of work is done for the gross amount and not the discounted amount. When someone is comp'd food or discounted it is not less work to do that work. Again, the tip actually left was some random amount the customer decided to leave and there would be no way to tell if it was being left on the food portion of the ticket.

Hope I'm not totally mis-reading your question.

Regards

[LukeNieuw]

yes sorry, I am talking about servers splitting the their tips with the kitchen.

Those are 2 great points.

1. Servers are taking their CC Tips in the full amount of cash but we are paying the CC charge taking a loss for their tips.
2. Keeping the figure on Gross Sales, I thought of that too and it makes sense but most people when they tip hit the EZ buttons as a % of their Bill. Which could be significantly reduced if say, as an extreme example, someone redeemed a $100 reward on a $150 bill. The customer tips on the $50 but the server is expected to payout the % on the total $150 Bill to the kitchen. If that makes sense. These are going to be rare occasions and perhaps it's more of a training thing with my team, having them quickly say the tip button is based on the discounted amount....

[ryanwanner]

Gross sales for me: the staff still does the work for the gross amount not a discounted amount.

We currently split the tips 80/20 between the FOH and BOH sides, still using a spreadsheet since the tip pooling hasn't caught up with all the potential scenarios. Hopefully that will get fixed sooner than later!

CC tips are included in the employee's checks. Cash tips are split evenly between the FOH staff (we're a counter service setup versus wait staff). When they close the drawer they leave the amount of cash tips behind they want us to claim for them.

[LukeNieuw]

Thanks @ryanwanner !!

[kmacmmurchy]

We pool "tips by hours worked" which is built-in to the system, but we tip out 15% to our commissary kitchen so it kind of doesn't work. We are a coffee house, so it seems like the most practical. They take cash from the CC tips and divide by hours worked daily. Seemed to work well until everyone quit using cash due to the pandemic, great for Square, not so good for us. Each store records what they've paid out.

The greatest challenge now is not having enough cash sales to tip out this way.

I like the idea of deducting 1.5% average for transaction fees as obviously I would be taking that hit. 

My daughter works at Earls and they use a tip card for their servers that adds it to a credit card type plastic card, but that's just another expense I can do without.

My 2¢
Ken

http://www.brewedawakeing.com

[lenjobakes]

@kmacmmurchy Worth noting that the 1.5% allowance is in the Ontario Employment Standards Act. There are jurisdictions where no deductions may be made to tips, so just double check with your province so you don't get in trouble 😊

[motherpacha]

Our counter service cafe has done the “traditional” way in the past, that is pooling tips from the day’s cash and credit card tips, giving the kitchen a set percentage, dishwasher a set percentage, and split by hours worked for FOH. Cash was paid out daily for credit card tips. Since everybody was paid over minimum wage we let the staff deal with their own tax liability. Baristas did all the splitting and filled in a sheet so that we could verify their work. Inevitable mistakes, miscalculations.

All that has changed. With the pandemic we found we were running to the bank for cash daily which quickly grew old. We made a decision that after a return to work from a forced closure in 2020 when everyone went on unemployment for 6 weeks, we would switch to everybody making $15/hr or more, and evenly splitting tips. It’s actually something I’ve wanted for a long time, having worked my share of both FOH and BOH as owner. Plus the baristas were making drinks and cooks were making food and it was all getting put in a bag and delivered to a car, so it seemed fair. There wasn’t much distinction in service. We also took advantage of the temporary closure to switch to paying tips in paychecks. That way I can calculate the split, just once every two weeks using Square reports and our timesheets, so no errors from math-deficient baristas, and avoiding potential IRS hassles. 

We continue to do it that way even with inside dining back. I feel everybody is working hard to serve the customers ultimately, and all should share in the tips evenly, except our manager who is salaried and thus not eligible. I know it‘s not for every situation, but to me equitable pay comes with equitable tip sharing. I have thought about deducting the Square transaction fee, but haven’t yet. Question for Ken, how do you have a 1.5% average fee? That’s so low. Is it because you’re combining with cash tips? Almost all of ours are through CC, and our fees are double.

As far as looking at gross versus net sales I’d think gross better to decide the split between drinks/food since work is work whether they had a coupon or not. 

That’s been our story!

Marjorie

[vhovar]

Marjorie,

With all this discussion I decided to check last year and this year to see what our overall cc fee percentage has been. I had been estimating 3% but in calculating it I find that it is a little over 4% for both last and this year. You are allowed to recoup that amount as long as you can show that you are not holding back more than what is actually being paid in fees.

I was also curious about the 1.5% that Ken mentioned. Googling how Canada handles tips it seems that Ontario allows for: "an employer can deduct or withhold a portion of the credit card processing fee from the tip or gratuity provided to the employee. Employers are permitted to deduct or withhold the greater of a flat rate of 1.5% of the tip or the pro-rated share of the processing fee associated with the tip on a specific credit card transaction." 

And, this only applies to credit cards. They are not allowed to withhold anything from tips paid by a debit card. 

Our actual tip processing is done by our staff. When we moved to Square a couple years ago I wrote a small web application that they use to "tip out" anytime there is a change to shift or EOD. The code looks through all the transactions since that last time tips were processed and provides a calculated total for them to remove from the drawer and split between all working at the time. When they process the tips I write a history record so I know what was taken out of the drawer and when the tips were last processed so I can start at that point in the transactions to calculate the next time. At the EOD they get they process the final shift and then I provide a day total of the amount taken out of the drawer for the day and they use this total to make a "Paid Out" entry in the drawer so the cash will balance.

We ensure our employees are aware that it is their responsibility to report their tips, cash and credit card, for income tax purposes.

[kmacmmurchy]

Hello Marjorie, I'm a little unclear of your question regarding the the 1.5% at the end of your paragraph. Earlier in this thread someone had mentioned that they retain 1.5% of the CC and Debit tips because we pay "at least" that much to Square on any "plasic" transactions, so it seems fair actually. I don't currently do this, but it's not a bad idea to help keep expenses down.

I look at my daily costs of using Square in my daily report and my "Effective Fee Rate" is usually between 1.5 and 2%. Not sure if that clarifies anything or not. I was able to negotiate a better rate with Square as I do high volume on a monthly basis.

Hope this helps.

Ken

www.brewedawakening.com

[sugarlab]

I'm so glad for this conversation thread! I didn't even think about the credit card fees for tips. That's a bummer! I guess I need to start holding back the 3% we typically have in CC fees so I'm not losing money to give my staff tips. Thankfully it's not a huge amount over the last year but of course everything adds up. 

[AnnaB]

It's somewhat of a surprising enlightenment reading about withholding the 3% CC fees from e-tips.  Though I'm aware it can be done, doing it never crossed my mind except for maybe a fleeting thought of "why?".  

If a staffer makes $100 in tips for the day, would I pull $3.00 from my wallet and say " thanks for a job well done"?   In an instant.  The more tips they make means the more customers are pleased with our establishment.  From beverage to food to staff.  

Do they get paid for providing that service?  Yes.  And just as a customer tips above the bill amount for quality fare and service, shouldn't I, as Owner, also tip staff?

And consider, that 3% isnt really 3% to me.  It's closer to 2% as that fee is a tax line deduction.  And if that particular staffer isn't worth tipping 2-3% of their e-tip amount, why do I have them on staff? 

One thing for certain, in our staff meeting next week, I will be mentioning this thread debating those fees ... and we will continue our policy of not charging their tips that 3%.  The morale boost and team camaraderie just touching on the subject pays for that 3%.  

[kmacmmurchy]

Yes the reality is, it really amounts to very little, but over the year, one can keep in mind that it is an expense and I certainly don't want to raise waves with the great staff I'm blessed with.

[sugarlab]

Thank you Anna for the continued conversation. I probably wasn't going to be deducting the 3% since I didn't want to deal with that added time come payroll. But you have changed my mind for not doing it for another reason. If I were to take away digital tips as an option, my staff would have significantly fewer tips and would probably leave. I looked up how much 3% of tips was last year and it seems like a big number, but in reality, it wouldn't mean much in terms of my staff. So I'm going to be leaving the tips as is, and considering it just part of my usual square credit card fees. Thank you for opening my mind!