Category: Restaurant Management

Thinking about implementing a mandatory tip pool?

In more collaborative work environments, tip pooling might seem like a logical, equitable way to handle employee tips. It can encourage teamwork, build a spirit of camaraderie, and ensure that all of your employees are fairly compensated for their hard work.

But depending on where you’re located, tip pooling laws can get very complicated, very fast. A quick Google search will show you how many restaurants have found themselves at the center of costly lawsuits because they were (often unintentionally) operating illegal tip pools.

So: before you pass go, get up to date on the latest tip pooling laws and regulations to avoid hefty fines and a bad reputation. 

The Fair Labor Standards Act (FLSA)

Starting in 2020, the federal Department of Labor made significant rulings based on the tip regulations stipulated under the 2018 Fair Labor Standards Act. These new rulings are designed to better protect tipped employees from wage theft and other illegal tipping practices. They’ve released their final rule, which went into effect on April 30, 2021.

One important thing to note: while the DOL uses the umbrella term “tip pooling,” these rules apply to all tip-sharing practices, including tipping out. Even if you’re not explicitly pooling and redistributing tips, any tip sharing at all is subject to these laws.

Who can keep tips? 

Employers are completely barred from keeping any tips, pooled or otherwise. According to the FLSA, tips explicitly belong to the employees, not their employer, so any tips withheld by the employer can be seen as wage theft. 

As an extension of the employer, managers and supervisors may not participate in a tip pool or retain any employee tips. Managers can, however, keep tips that are directly given to them based on service they directly and solely provided. 

Some of the tip pooling laws depend on if your restaurant is taking the federal tip credit of up to $5.12:

• If you do take the tip credit, non-tipped employees (like cooks, dishwashers, and other back-of-house employees) cannot participate in the tip pool. 
• However, if you do not take the tip credit and pay traditionally tipped employees the full minimum wage, the tip pool can be shared with your back-of-house staff and other non-tipped employees. 

Maintaining Payroll Records & Timeliness

For the most part, the Department of Labor rewards employers who don’t take the tip credit and pay their tipped employees the full minimum wage by offering more flexibility around tip pooling. 

Still, even non-tip credit establishments have some extra rules to follow. Employers who require employees to pool their tips must maintain thorough records of payroll, tip redistribution, and the weekly/monthly tip amounts for each employee.

Speaking of payroll, all pooled tips must be redistributed to employees by the end of the pay period in which they were earned. The timeliness of returning tips to employees applies to all establishments, whether you take the tip credit or not. 

State and Local Tip Pool Laws 

Don’t forget that tipping laws vary state by state — and some states explicitly bar tip pooling. If you live in Kentucky, Wyoming, Minnesota, or Montana, you cannot require employees to participate in the tip pool, but employees may voluntarily pool tips if they so choose. 

Additionally, many states have higher minimum wage requirements than those laid out by the federal government, so you may need to double-check that your tip pool doesn’t cause any employees to fall below their required pay. 

As of now, 14 states have additional state laws that extend beyond the FLSA rulings, so make sure to read up on your state’s tipping regulations before implementing a tip pooling system.

Here are the states where tipping & tip pool laws vary: 

California

Tip pools are legal, but they cannot be shared with BOH employees or any manager who has the power to fire employees. 

Employers are also required to pay servers the full minimum wage of $15.50/hr — meaning California business owners cannot take the tip credit.  

Colorado

Tip pools are legal, but Colorado does have more rules about the tip credit. If you deduct credit card processing fees from your servers’ tips, you cannot take the tip credit and must pay the full minimum wage of $13.65.

Delaware 

Mandatory tip pools are legal, but servers cannot be required to contribute more than 15% of their tips. If servers create their own voluntary tip pool, they can choose to contribute as much as they would like. 

Kentucky 

Mandatory tip pools are illegal, but employees may voluntarily form their own tip pool. 

Maine

Any mandatory service charges must be treated as a tip for employees, so therefore, service charges can be included in the tip pool. 

Massachusetts

Mandatory service charges are viewed as tips that can be included in the tip pool, but only employees who provide direct service can take part in the tip pool. 

Minnesota

Mandatory tip pools are illegal, but employees may form their own tip pools. The employees may also vote to allow their employer to manage and disperse from the tip pool. Mandatory service charges are also viewed as tips unless it’s explicitly stated to the customer that they are not being paid to the employee. 

Montana

It is illegal for employers to mandate a tip pool, but voluntary tip pools are allowed. Mandatory service charges can only be treated as tips for the server. 

New Hampshire

Mandatory tip pools are banned, but employees may elect their employer to manage and disperse voluntarily pooled tips. 

New York 

Mandatory tip pools are legal, but employers are banned from participating. Employees providing direct service and supervisors with limited authority are the only employees allowed to participate in the tip pool. All mandatory service charges must be paid to the employee who provided the service. 

North Dakota 

To establish a tip pool, employers must hold a vote for the tipped employees to make the final decision. At least 50% plus one of the tipped employees must vote in favor of the tip pool, and the employer must keep record of the vote. 

North Carolina 

Tip pooling is legal but only among regularly-tipped employees. Employees may only contribute up to 15% of their tips to the pool. 

Utah

Tip pools are legal, but the tip pooling policy needs to be provided in writing before establishing a tip pool or hiring any new staff. 

Wyoming

Only voluntary tip pools are legal in Wyoming, and employers are banned from pressuring or coercing their employees to form a tip pool.

What’s at stake? 

If you don’t comply with federal tip pooling laws – even without your knowledge – you could be liable for massive fines and employee back pay. In 2020, the Department of Labor also released its final rule on Civil Money Penalties (CMPs) to determine the punishments that come with violating the FLSA tip regulations. 

The final rule clarified that the Department of Labor can assess penalties of up to $1,162 per violation, even if the violations aren’t repeated or willful. This fine is in addition to back pay and damages that employees can sue for. 

On top of the financial risks, you don’t want to ruin your reputation. No one wants to work for a company known for shady tipping practices, and customers generally don’t want to support unfair labor practices either. It’s in your best interest to take tipping laws seriously. 

Rulings and regulations can get confusing without expert help. It’s always safest to speak to an attorney to ensure that you’re complying with federal, state, and local tipping laws to keep your business out of hot water. 

Additional Resources

• FLSA Fact Sheet
• Minimum Wage by State
• Federal Tip Pool Regulations

Once you’re confident that you’re complying with tipping laws, consider making tip pools and tipping out even easier. Request a demo of Kickfin to see how digital, instant tip-outs simplify tipping, save time, and help you retain employees.

Confused by digital tipping? We hear you. Get up to speed with this quick rundown so you can keep up with the ever-expanding world of restaurant tech. 

Digital tipping is an umbrella term that gets used interchangeably — but it covers a few different use cases. If you’re in the market for a digital tipping solution, it’s important to understand the different types of digital tipping. 

Here’s how we break it down: tip acceptance and tip distribution. One is important for accommodating customers’ needs (and frequent lack of cash on hand); the other allows your business to pay employees more efficiently.

Depending on the type of company you’re running and the way your team is structured, you might have a need for digital tip acceptance, digital tip distribution, or both. 

Digital Tip Acceptance 

We’re probably stating the obvious here, but cashless tip acceptance isn’t new: every time a customer pays for a meal or service and leaves a tip on their credit card — well, you’ve just accepted a cashless tip.

But now more than ever, companies are using POS systems and digital tipping software (like Kickfin) to accept cashless tips where cash had been the norm — or where a tip may not have been offered at all. For example:

• QSR and fast casual restaurants: Rather than dropping their change into a tip jar at the coffee shop or to-go counter, customers are being prompted to leave a digital tip directly on the POS. (You know, the old iPad swivel…)
• Online ordering: Online ordering systems now allow users to leave a tip from their phone instead of paying a delivery driver in cash. Brands like Panera even give you the option to tip when you’re placing a rapid self-pickup order and wouldn’t otherwise have an opportunity to interact or tip the people preparing your food.
• Hotel guest services: Many hotels are adopting text-to-tip options and QR code tipping so that guests can easily tip their housekeepers, valets, and concierges if they forgot to swing by the ATM first. 

With the expanded uses of digital tip acceptance, we’re seeing many more opportunities to thank service industry employees for their work, even when we don’t have bills in our wallets or a direct interaction. 

More tipping options allow employees to boost their incomes (and who doesn’t love that?), so they stop losing out on tips just because customers don’t carry cash. Plus: it allows even more employees to become tip eligible  Business owners and managers can also use the opportunity to earn tips to attract and retain more hourly workers. 

See cashless tipping in action! Get a Kickfin demo today

Digital Tip Distribution

Since most of your employees’ tips are cashless anyway, paying out cash tips has become a major operational challenge — which is why so many restaurant teams are choosing to move away from cash tip-outs. 

But that doesn’t mean employees can’t get paid on the daily. Enter: digital tip distribution.

Instead of having your managers run to the bank, count out tips, and distribute envelopes of cash day after day, shift after shift, there is now a range of options for digital tip distribution — payroll, paycards, or instant digital tip-outs. 

This side of cashless tipping is a little newer, and it’s impacting how restaurants, hotels, and other service industry businesses view their daily operations and hiring practices (for the better):

• Digital tip distribution saves managers from running to the bank during a shift — when they could be touching tables, helping on the line in the kitchen, or getting caught up on inventory.
• Operators save money because digital tipping eliminates costs associated with cash deliveries and employees waiting for their tips on the clock. 
• Digitizing tip payments can reduce the risk of error and theft.
• Gen Z and Millenials are increasingly demanding instant, digital payment options. If you’re competing with other restaurants for the hourly workers, offering instant digital tips can make your establishment stand out from other employers.

Ready to check out cashless tipping for yourself? At Kickfin, we offer cashless tip acceptance and instant digital tip outs that are sent straight to your employees’ bank accounts, the second their shift ends. Request a demo of Kickfin. 

Change is constant in the restaurant world — and it can be a great thing. (Carryout cocktails, anyone?) 

But for upwards of 11 million people, restaurants are workplaces. And change in the workplace? That can be pretty scary for all parties involved.

In the last few years, there’s been a whole lot of change for restaurant workers: between a pandemic, an unstable economy, a tough labor market, supply chain nightmares, and a rapid digital transformation…it’s been a lot, to say the least.

Which means there’s never been a better time to implement a well-considered change management strategy. Whether it’s a new menu, new software, or even new ownership, there are a few things you can do to help your staff prepare for and adapt to the changes that always seem to be coming down the pike. 

If you’ve never had a change management strategy, or if yours needs an update: here’s a list of 8 best practices for successfully introducing and implementing changes in your restaurant.

1. Communicate the change — and the why behind it

The number-one way to ensure a smooth transition: effective communication.

Don’t just spring a completely new system on your staff. Communicate changes as early as you can and offer as much transparency as possible. 

Remember: while change can be a hard pill to swallow, it’s a whole lot more palatable if your employees understand why it’s happening. Here’s a simple way to structure your initial communication around a change:

• Overview: Give them a brief summary of the change. Keep it short and simple — and let them know that further details are coming soon.
  
• Logic: Explain your rationale behind the change. Was there an obvious problem that this change will solve? And why now?
  
• Benefits: Show your employees how the change will positively impact the restaurant (and, hopefully, the employees themselves). For example, if a new system will improve the customer experience, then your servers and bartenders can expect higher tips (woo!). And of course, remind them that a successful restaurant means greater job security.
  
• Details: How will the change play out? Explain how the change will affect day-to-day operations and processes.
  
• Timeline: Lay out all of the key dates for the transition. Mark down any big training or implementation days, the day when the change will officially take effect, and a future date for employees to provide their feedback about the new system. 

2. Use the proper channels (hint: more than one)

Make sure that no employee misses the memo on a major change.Here are a few things to remember when getting the word out:

• Employ multiple channels. Whatever your “primary” communication is, you likely have multiple ways of reaching employees and distributing information. Especially for big changes, make them hard to miss. Maybe in addition to a team meeting, you also send out a text, hit up the #announcements channel on Slack, and hang a flier in the kitchen. (Pro tip: This is also a great time to evaluate and optimize your communication channels.)
• Consider the gravity of the change. Does your staff need to start wearing blue socks instead of black ones? Might not be worth an all-staff meeting. Was a seasoned manager let go? Probably want to communicate sensitive news in person. Make sure the channels you’re using are appropriate given the nature of the change. 
• Squash the rumor mill: In a close work environment, people are going to talk. But getting ahead of “breaking news” in your restaurant and communicating it to employees all at once — instead of letting it trickle through the team — will go a long way in maintaining a healthy, transparent culture.

3. Gather feedback the right way

No, you don’t have to make every decision by committee, or put every change to vote. 

But when you do it right, soliciting feedback can be beneficial. Your employees are on the front line and will likely be most affected by a major change — be it a new menu or new closing procedures — so they might bring valuable insights to the table. Bonus: it shows you care about your employees’ POV.

With that being said, we humans are naturally averse to change. If you ask for opinions, expect to hear some strong ones. 

So, the million-dollar-question: How do you show that you value your employees’ without creating a free-for-all? 

A few tips:

• When you initially communicate the change: Along with presenting the logic behind the decision, be honest about whether the topic is actually open for discussion.

If it’s open for discussion: Put an organized system in place to solicit and review feedback. To help minimize negative, knee-jerk reactions, give employees time to digest the news before asking them to submit feedback. And consider providing guidance to keep that feedback focused and healthy. This could be something as simple as a series of prompts, e.g.: 

• What do you like about the change?
• What questions or concerns do you have about the change?
• What suggestions do you have that you think might improve the change?
• If it’s final: You should still make sure every member of your team feels heard and supported. Give them a clear path to voice concerns and be willing to talk through objections. 

(If and when you gather feedback, bear in mind: It’s always going to be harder for your employees to effectively weigh all risks and benefits. They’re not running a company, and they don’t have insight into every aspect of the business. At the end of the day, employee feedback should be thought of as an input, not the entire equation.)

4. Get buy-in on the front end

If there’s a natural, trusted liaison between employees and upper management – like your head servers or FOH managers – consider pulling them in early to make them aware of the change before sharing it with the broader team. 

A few reasons why this could work in your favor:

• It’s a great relationship-building tactic to demonstrate the trust you have in that person as a team leader.
• They might be able to help you anticipate concerns or objections from the rest of the team, so you can be prepared to address those early.
• If they show that they’re comfortable with — or even excited about — the change, that can help set the tone for everyone else.
• They can act as an additional channel of communication and sounding board for employees and relay back additional insights that you might have missed.

5. Offer options when you can

Again, soliciting feedback can be tricky. Because the status quo tends to be very comfortable, given the choice between change and no-change, many employees will likely choose the latter.

So consider framing the situation as: “The status quo is no longer workable, so we need to make a change. Here’s the option that our management team believes is best for everyone — and here are a few other options on the table.”

Our Kickfin customers do this all the time. While employees love getting their tips instantly, directly to their bank account — moving away from cash can feel daunting for some folks at first. So before making the switch to digital tipping, management might set the stage this way: 

• “Cash tip distribution is having a negative impact on our business. We need to move away from cash tip-outs, and we believe Kickfin’s digital tipping solution has the most benefits for you, as employees, and for our operations. We’ll provide all the details as to how Kickfin works and what this change means for you. Another option is to receive your tips on payroll. Let’s talk it through!”

6. Provide training and support 

You wouldn’t want to learn a completely new process overnight — so don’t expect the same of your staff. With any major change, make sure to provide several opportunities for staff to prepare before they hit the ground running. Here are a few ways you can do this: 

• Host a tasting event for new menu items (a good opportunity to teach them how to suggest drink pairings)
• Hold (paid!) training sessions on a new POS system or technology
• Invite new managers to meet with staff before they take over the helm
• Be available for one-on-one training and questions 

Most importantly, don’t expect employees to just “get it” right away. Be accommodating to their questions and provide as much support as they need. 

7. Create positive energy 

Once again, for the people in the back: change is hard. Acknowledging that your employees might be experiencing some disruption — and recognizing their hard work — can make all the difference when it comes to adjusting and adapting. 

Here are just a few ways you can express your appreciation for their flexibility, patience and positive attitude:

• Shout-out employees at pre-shift meetings
• If employees don’t already get a free meal each shift, offer a week of comped employee food
• Give away merch (branded hats, bags, t-shirts, etc)
• Offer a gift card or small bonus as a token of thanks
• Throw a staff party to celebrate a successful transition 

8. Check in with your team 

After you’ve implemented a new process or change, your work isn’t quite done.

Check in with your staff regularly to see how things are going. Ask them specific questions around the impact of the change — don’t get offended if they answer honestly. You need to know if a new process is actually improving your restaurant’s workflows and day-to-day operations. 

Most importantly, give your team ample time to settle into the change and work out any kinks before attempting to course correct.

Bottom line: managing change is really all about managing people. Effective communication, proper training, and fostering a culture of trust and transparency will ensure a smooth transition for all parties involved.

Looking to change how your restaurant manages tip outs? Check out Kickfin’s cashless tip-out platform, and request a demo today.