Understanding Service Charges for Restaurant Owners

Service charges, a customary practice in numerous industries, have become far more common in the cost-intensive, low-margin restaurant business in recent years.

A service charge is a fee added to a customer’s bill to cover various aspects of service on top of the cost of goods (i.e., food and beverage). Service charges can serve multiple purposes depending on the restaurant’s policies, from supplementing staff wages to offsetting operational costs.

While service charges are legal, they’re often misunderstood — and somewhat controversial. Diners don’t love being surprised at the end of a meal with an unexpected fee — especially if it’s not clear what the fee is actually for or where it’s going. Many assume it’s a tip (it’s not!), which can negatively impact employees’ take-home pay.

While service charges can be useful for operators who are fighting an uphill battle against inflation or staffing issues, it’s critical to understand exactly what a service charge is (and isn’t), how to implement one, and what to consider when it comes to compliance and reporting.

What is a service charge in the restaurant industry?

In the restaurant industry, a service charge is a mandatory fee that gets added to a customer’s bill. This fee is typically a fixed percentage of the total bill amount and often ranges from 10% to 20%.

It’s important to note that a service charge is not a tip or a gratuity, which are voluntary amounts left by customers in appreciation for service provided. Instead, a service charge is a mandatory charge, often used to cover the costs associated with providing the service, such as staff wages, maintenance, or administrative costs. These charges are common practice in many restaurants, particularly in fine dining or restaurants with large numbers of staff.

As Beth Schroeder of Raines Feldman LLP explained in her recent Hot Tips & Takes interview, the proceeds of service charges are the property of the restaurant to do with as management sees fit.

Service charges for restaurant owners can help to:

Compensate for staff expenses: One of the primary reasons many restaurants implement a service charge is to help cover staff salaries and benefits. While tips can often supplement these costs, they are not always reliable and can fluctuate greatly. Service charges provide a more consistent and reliable revenue stream, ensuring that restaurant staff are compensated fairly for their work.
Maintain high service standards: Service charges can also be seen as a reflection of the superior service offered by the establishment, as they’re often found in high-end restaurants where exceptional service is part of the dining experience. Funds generated through service charges can be used to invest in training and development programs for the staff, helping to maintain high service standards.
Balance food costs and pricing: Implementing a service charge can help balance the cost of high-quality ingredients with competitive pricing for the customers. Restaurants operating in a higher price range often use premium ingredients, and a service charge helps offset these costs without needing to increase menu prices significantly.
Share tips equitably among staff: In many establishments, tips are shared among the service staff only. By implementing a service charge, restaurants can ensure a more equitable distribution of tips among all staff members.
Offset the cost of bottle service: For restaurants offering bottle service, the associated costs can be substantial. This service often involves premium liquors and additional staff to cater to the table. By applying a service charge, restaurants can help offset these costs.
Facilitate large group payments: Service charges are particularly advantageous when catering to large groups or events, such as banquets or parties. A preset service charge can ensure that the staff is equitably compensated for their time and effort and that costs associated with special decorations or other incidentals are covered.
Address split meal charges: When large parties dine together and split bills, it creates additional work for service staff. A fixed service charge helps compensate for this increased workload.
Accommodate delivery fees: One last case where service charges are common is in covering delivery fees. As food delivery has gotten more popular, restaurants have had to bear the cost of partnering with food delivery platforms. These platforms charge a significant percentage of the order total as their fee. By incorporating a service charge, restaurants can manage these expenses without having to compromise on the price or quality of their food.

What’s the difference between a service charge and a tip or gratuity?

While this can be confusing to diners, service charges and tips/gratuities are not the same. The key differences between a service charge and a gratuity:

Service charges are compulsory. Service charges are mandatory and non-negotiable. Tips, on the other hand, are not required. Yes, they’re often expected — and many hospitality employees rely on them to increase take-home pay — but ultimately, tips are discretionary and generally based on the quality of the meal and service.
Service charges are a set percentage of the bill. A service charge is a fixed percentage of the total cost of a meal as determined by the employer; it generally ranges from 10-20% of the bill. With tips or gratuities, while 15-20% is a customary percentage of the bill, the amount is completely up to the customer.
Service charges belong to the employer. Service charges can be used to increase staff wages, but ultimately, it’s the employer’s call as to where those funds go; operators might choose to use a service charge to offset other costs of doing business. Tips, on the other hand, belong solely to employees. Employers can implement tip pools or tip shares to distribute tips more equitably among employees, but it’s illegal for them to keep any portion of tips from any employee.
Service charges are categorized differently by the IRS. When a service charge is used to increase employee compensation, it’s still not considered a tip. It must be reported as a “non-tip” wage.

Tipping on top of service charges

It’s important to understand that tipping is also still typically expected on top of the service fee.

Again, though a service charge can contribute to the staff’s wages, that’s not always the case. Employers might use service charges for other costs of doing business. When this happens, “service charge” is a bit of a misnomer; that is, customers may (reasonably!) assume that the fee is going to the person or people who provided the service. As a result, customers might be less inclined to leave a tip.

That’s why it’s important for employers to clearly communicate to both customers and employees how the service charge is being used. If it’s unclear, and the charge isn’t being used to increase compensation, it’s likely that employees will miss out on tips. .

What is an automatic gratuity or auto-gratuity?

Automatic gratuities are service charges, not tips or gratuities. (Confusing, right?)

Automatic gratuities or auto-gratuities are perhaps even more of a misnomer than “service charge” — in fact, some legal professionals advise employers to avoid using the term altogether.

Here again, customers will often assume that their service provider is the recipient of the automatic gratuity (and choose not to leave a tip on top of the auto-grat). Because auto-gratuities are service charges, they belong to the employer. While they can be brought in as non-tip wages for employees, they can also be used for other operating expense.

How service charges impact restaurant employees

Service charges have a significant impact on restaurant employees, affecting their overall income, the perceived value of their work, and job satisfaction. Here are some of the ways service charges influence employees:

Income Structure: When paid to the employee, service charges can provide more stable income for employees because they don’t fluctuate like tips.
Pay Distribution: When they’re distributed, service charges are usually divided amongst all staff, including non-tipping positions such as cooks and dishwashers. This can lead to a fairer distribution of income.
Reduced tip earnings: This may not be problematic if service charges are being paid to the employee. However, as noted above, customers might be less inclined to tip on top of a service charge, which can hurt employees who rely on tips as a significant portion of their wages.
Motivation and performance: Given the compulsory nature of service charges, some employees might feel less motivated to provide excellent service, as their earnings are not directly tied to their service quality. On the other hand, it might also alleviate some pressure, allowing employees to focus on providing consistent service without the stress of variable tips.

If a service charge is primarily used for fair wage distribution among employees, it can have significant implications on their wages and tips. This practice can ensure a more equitable wage structure, especially in establishments where behind-the-scenes staff, such as cooks and dishwashers, typically do not receive tips.

Using the service charge for paying employees can bring a sense of fairness and stability to restaurant wage structures, but it also requires clear communication and understanding from both employees and customers to function effectively..

How service charges impact restaurant customers

Service charges offer several benefits to restaurant owners and staff, but also have implications for the customers. These include:

Reduced tipping: Customers may believe a service charge is a substitute for a tip and reduce or eliminate their gratuity. Customers may also feel that a mandatory service fee reduces their control over rewarding good service, traditionally reflected through their tip.
Surprise costs: Customers unaware of a service charge may be surprised or frustrated when they receive the bill. This could be perceived as hidden costs, which might impact their overall dining experience negatively.
Increased scrutiny of service quality: Knowing that a service charge will be added to their bill, customers might scrutinize the quality of service provided more closely, with customers more likely to be upset by any small lapse in service.

Potential impacts of service charges highlight the importance of clear communication and excellent service, ensuring customers understand the purpose of the service charge and feel it justifies the quality of their dining experience.

Is implementing a service charge worth it?

Implementation of a service charge can have significant implications for a restaurant’s revenue. From a financial perspective, a service charge can lead to a more predictable revenue stream. Unlike tips, which are subject to variability, service charges are fixed and therefore ensure a consistent addition to the restaurant’s revenue.

However, the success of implementing a service charge largely depends on how it’s perceived by customers and employees. If customers feel that the service charge doesn’t correlate with the quality of service, or if it significantly increases their total bill, they might reconsider their dining choice, potentially leading to a reduction in customer frequency and ultimately affecting the restaurant’s revenue.

On the other hand, if service charges are used to ensure fair wage distribution and provide a stable income for employees, it can foster a more satisfied and motivated workforce. This can indirectly contribute to the restaurant’s revenue by reducing employee turnover, enhancing service quality and efficiency, and creating a positive dining environment that attracts and retains customers.

How to collect a service charge at your restaurant

The general process for handling service charges is as follows:

1. Determine how much you will charge: A service charge typically ranges from 10% to 20% of the total bill but can vary based on the restaurant’s specific requirements.
2. Determine how you will spend the funds: The service charge can either be retained by a restaurant or distributed among employees.
3. Inform and train staff: Staff should be informed of how the service fees will be used, how it impacts their income, and how it benefits the restaurant. Proper training should be given to employees, particularly those interacting with customers, to effectively communicate the purpose of the service charge and address any customer questions or concerns.
4. Create clear communication with customers: Customers should be informed about the service charge before they place their order. This can be conveyed through signage at the restaurant, communicated verbally by servers, or noted on menus.
5. Implement the charge: Once all of the above steps are completed, you can start levying the service charge on customer bills. This will involve updating your point of sale system and ensuring all staff are trained to handle the new billing system.
6. Distribute proceeds accordingly: Once you start collecting service charges, proceeds should be distributed to qualified staff members based on your policy. This is something that Kickfin can help with, if you don’t have the ability to cashlessly distribute tips and charges,
7. Ensure accurate reporting: Follow IRS guidelines for recordkeeping and reporting. When paid to employees, service charges should be treated as non-tip wages and are subject to social security tax, Medicare tax and federal income tax withholding.Employers can’t use these non-tip wages when computing the tip credit available to employers because these amounts aren’t tips.
8. Monitor and adjust: After implementing a service charge, be sure to monitor its impact on both restaurant revenue and customer satisfaction. Gathering feedback from customers and staff to identify issues or areas of improvement.

Remember too that it’s crucial that your restaurant remain compliant with local labor and tax laws when implementing a service charge system. This includes understanding how service charges are taxed and how they impact wage calculations. Laws can vary by location, so consult with a legal expert or your local government to clarify any uncertainties and avoid potential legal issues.

How Kickfin can help

Kickfin offers an efficient and streamlined solution for managing tips in your restaurant. Our platform allows you to easily implement, track, and adjust your tipping system, ensuring a hassle-free experience for both your staff and customers.

Kickfin is also designed to be compliant with local labor and tax laws, helping you stay within legal bounds when implementing tips for your restaurant.

To hear more about how Kickfin can help you manage and distribute tips, sign up for a demo with one of our in-house experts.

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Industry Trends, Restaurant Management

FAQ: What the “No Tax on Tips” Act Means for Restaurant Operators and Your Restaurant Team

We’ve been talking about “No Tax on Tips” for months, and now it’s a reality. But what exactly does that mean for restaurant operators and their tipped employees?

Signed into law on July 4, 2025, as part of the broader “One Big Beautiful Bill” tax package, the new policy eliminates federal income tax on tipped earnings (up to a cap…along with some other caveats…) for qualifying workers.

While No Tax on Tips garnered widespread support from hospitality employees and employers alike, there’s still a lot of confusion about how it works, who qualifies, and what it means for your restaurant team.

Our FAQ breaks it all down: the fine print, the benefits, the limits—and how you can make sure your team is positioned to take full advantage.

What does “No Tax on Tips” actually mean for my team?

The No Tax on Tips Act has created a new federal income tax deduction — up to $25,000 of “qualified tips” per year for employees in traditionally tipped occupations.

Tipped employees can deduct up to $25,000 in tips from their federal taxable income. (For added context, based on Kickfin customer data, the average tipped employee earns $125 per shift and works 15 shifts per month. That totals $22,500 in annual tip earnings.)
The deduction starts to phase out at $150,000 in annual income.
The deduction is currently restricted to those who earn $160,000 or less in 2025, but that’s expected to change in coming years to account for inflation.
These earnings are assessed based on employees’ income as of December 31, 2024.

Two other important items to note:

Deduction, not exclusion: This is a deduction, not an exclusion. That means all tips still need to be reported; the deduction will be claimed when your employees file their taxes. The deduction is on top of the standard deduction ($16,000 for individuals, $32,000 for married couples filing jointly).
Other taxes still apply: This bill is all about federal income taxes, so Social Security and Medicare taxes still apply. Also, keep in mind that this is a federal tax deduction. States will individually decide whether or not to align with the change.

Which types of tips are eligible?

The bill applies to cash tips—but it’s technically a little broader than that. According to the Senate Finance Committee, “cash tips” includes:

Physical cash tips
Credit card tips
Tips shared through pooled or tip-sharing arrangements

Other types of charges and fees that restaurant customers pay are not eligible for the dedication.

Mandatory service charges
Surcharges
Automatic gratuities

Essentially, any earnings from compulsory charges are not considered tips. Even if a restaurant passes those funds on to employees, they’re not eligible for the deduction. Do employees have to report their tips to get the deduction?

Short answer: Yes. And aside from being legally required to fully report their tip earnings, it actually behooves them to do so.

It’s no secret that many tipped employees don’t fully report their tip earnings. There are a variety of reasons for this: general confusion about tip reporting, poor tracking, and of course, a desire to avoid taxes.

Credit card tips are automatically tracked in most POS systems, so those are typically accounted for. Cash tips, on the other hand, are often underreported.

Again, because this new bill is a deduction, not an exclusion, employees must report their tip earnings to qualify.

Not only will this (legally) allow employees to reduce their tax burden; reporting their full income can really come in handy with things like loan applications, unemployment benefits, and Social Security earnings.

Is this all good news for employees?

Again, for the most part in the hospitality and service industry, there’s a lot of support for this legislation.

It will put money back in the pockets of many tipped employees—which can make a meaningful difference, especially for those who live paycheck to paycheck.

But some in the industry have voiced concerns:

Lowest-earning tipped workers won’t see much benefit. Many of the lowest-earning tipped workers wouldn’t benefit much, or at all.because they’re not paying a significant amount in federal taxes to begin with.
Some workers excluded: Not all hospitality employees are tipped employees – if you’re not operating a tip pool for example, a lot of your BOH employees aren’t going to see any benefit here.
Service/surcharges/auto-gratuity: Compulsory charges are not considered tips, so even if all of those funds are going to the employees, they will still be taxed. Again, that means BOH workers who aren’t tipped but who benefit from service charges won’t get a tax break.

What do restaurant operators need to do?

While there’s no major compliance burden on employers (yet), the smartest operators are thinking ahead—especially when it comes to digitizing tip management.

Here’s why that matters:

Accurate reporting: Employees need clear, auditable records to claim the deduction
Transparency: With platforms like Kickfin, employees can log in to view their full payment history—no guesswork required
Tip pooling: If you want your BOH team to benefit, you’ll need to operate a formal, compliant tip pool.
Efficiency: Automating tip pools (and ensuring accuracy), managing payouts, and syncing with payroll is easier than ever.

Is it time to hit the reset button?

If you’re already using a digital tip management platform like Kickfin, you’re a step ahead—your team will be well positioned to take full advantage if and when the law goes into effect.

If not: This new policy is a great reason to refresh your tip management approach, including digitizing your distribution process, re-evaluating your tip pool policy, and improving payment tracking for your team. And good news—Kickfin can help with all of that. Let’s talk.

Restaurant Management

Tales from Reddit: (Brutally) Honest Opinions on Tip Pooling

Have you ever wondered how your employees really feel about your tip pool?

While you can (and should!) source feedback from your own team, Reddit is always a great place to get brutally honest opinions on…well, just about anything.

So we did some digging in a few lively Subreddits (r/TalesFromYourServer and r/KitchenConfidential, among others) to understand how real workers feel about their own restaurant’s tip pooling policy.

Of course, no two tip policies are alike, but these Reddit tales may offer some helpful useful insights as you evaluate your own tip policy — and help you avoid common pitfalls.

Tip Pooling Tales from Reddit

Not surprisingly, there are strong feelings about tip pooling from servers and other restaurant employees on Reddit. The conversations often centered around these high-level themes:

Does tip pooling really foster teamwork?
Do top performers take the biggest hit?
Can tip pooling help with income consistency?
Is it fair to include back-of-house?

Read on for a deeper dive!

1. Tip pooling and teamwork

Many Redditors noted that tip pooling can help to create a collaborative, team-first culture where everyone wins.

Of course, that comes with some caveats from the Reddit crowd:

“I own a fine dining restaurant with tip pooling. … servers help each other out and care what’s going on in others sections … the servers REALLY care about training their coworkers right.”

“It’s the best system in the world if you work with a team where everybody is competent and pulls their weight.”

“We do tip pool… Less drama, more teamwork… efficient when you work with people that are hardworking and pull their own weight.”

“It forces a stronger team mentality…No system is perfect and the strongest servers definitely take a hit most days, but it’s the positive environment that makes up for it usually.”

“I think it helps encourage the senior staff to invest in the newbies. Obviously, if the newbies efforts or attitude aren’t cutting it, time to go.”

The takeaway: If you have the right people, then your tip pool becomes a motivator for your employees to have each other’s backs, to participate in training the newbies, and to be accountable to each other. As the last Redditor here noted, it also means you have to be willing to weed out your weakest links.

2. Does tip pooling penalize top performers?

On the flipside, some commenters highlight how employees — particularly top performers — feel the system redistributes their hard-earned earnings to less productive coworkers, which can erode motivation to upsell, promptly turn tables, or cultivate regulars.

“You lose the need to hustle…tip‑pools have taken away my ability to control how much money I walk with … which made me less willing to hustle.”

“‘Lazy people…hold up the tables so they work less than others but make the same money.’”

“I was pulling $400‑$600 by myself and then … only saw $150‑200 of it which really sucks.”

“Personally not a fan of tip pooling. I typically have the highest tip percentage and I’d rather keep that for me.”

The takeaway: When the link between effort and reward is weakened, the drive to earn more through performance can dwindle. Again, as always, the goal is to have a team of top performers across the board — but in reality, you’ll always have a range of talent.

If you’re using a tip management system like Kickfin, you can track your employees’ tip payouts over time and see how payouts actually stack up across your team. You can always tweak your tip pooling policy to ensure your performers are getting rewarded for their extra-hard work. Or consider offering shift-based performance bonuses outside of the pool, based on things like guest feedback or upselling performance. This keeps the pool intact but allows standout employees to earn more.

3. The case for income consistency

When tips make up the majority of your take-home pay — as is the case for many restaurant workers — you may not know what to expect from one shift to the next. That can make managing finances hard, especially for workers who are living paycheck to paycheck.

Tipping is supposed to reward high quality service, so theoretically, tipped employees wield a fair amount of control over what they earn. And tip-pool detractors argue that tip pooling takes away that control.

But in reality, it’s not so black and white. For example, some sections are busier than others; the employee working the patio on a warm summer evening might be set up to earn more than the server working the back corner next to the restroom. The bartender working the night shift is going to earn more than his coworker who’s there for lunch.

And unfortunately, research shows that customer bias and discrimination can impact tip earnings.

As some Redditors pointed out, tip pooling can help reduce this income variability.

“Pooling tips offsets any issues with tables that don’t leave a tip…Overall, this system has increased the quality of service…”

The income might decrease a little bit on busier days but it does usually increase on slower days. And the income is more consistent.”

The takeaway: Of course, it’s not fair to always work the busiest section of the bar, only to split tips evenly with bartenders who work in a much more laid-back section. If you’re pooling tips to help with income variability, it’s wise to find additional ways to control for other variables. For example:

Strategically rotate busy and slow sections among your different servers.
When scheduling, make sure the same people aren’t always opening and closing — and as much as possible, rotate your employees through high- and low-volume shifts.
Offer easy section or shift trades for employees.

4. Should Back-of-House Be Included in Tip Pools?

In addition to the general pooling benefits (collaboration, culture) — there are some valid reasons to include BOH in your tip pool:

Guest experience: When tipping, guests take into consideration things like quality of food and speed of service — which BOH staff heavily contribute to.
Guest expectations: Guests may assume that their tips are getting distributed to everyone — not just servers. (And taking it a step further: clearly communicating that to your guests could generate higher tip volumes.)
Retention: With rising labor shortages, offering tip sharing can help attract and retain skilled BOH workers who might otherwise leave for better-paying jobs.

(Keep in mind: There are some legal restrictions when it comes to including BOH in your pool — e.g., if you’re taking the tip credit, you generally can’t include BOH. Find more details on tip pooling laws and compliance here.)

So what do real-life servers say about including BOH?

“Many places in new orleans had made the switch after quarantine. It’s a God send to the back of house, for most cooks it can be life changing. The FOH is a revolving door now though, why split tips with the kitchen when you can make 600 a night at the bar down the street.”

“I am not upset, I’m getting paid decent and I know how hard it is to smile and be nice all the time and interact with the dreaded public. They are welcome to the extra money and the headache.”

The takeaway: First and foremost, ensure you can legally include back-of-house workers in your tip pool. If you feel it’s right for your restaurant, a few ways to make it work well for everyone:

Get buy-in from FOH and BOH: Clearly communicate how and why the structure works. Share real numbers and example breakdowns, and emphasize shared success — tips reflect everyone’s effort (not just what happens tableside).
Start small: If FOH is resistant, make the tip-out percentage minimal and see how it goes before increasing
Use a weighted distribution model: To fairly divide the tip pool, assign different weights or percentages to each role based on their contribution.

📝 Final Thoughts

Reddit feedback makes it clear…that there’s a lot of gray area when it comes to employee perspectives on tip pooling.

Ultimately, restaurant workers seem to agree that well-executed, shift-based pools under strong management can foster unity and a dependable livelihood.

But in mixed teams or mismanaged setups, performers lose motivation, and the culture quickly deteriorates — which ultimately affects morale and retention. And unfortunately, all of that can spill over into the guest experience.

If you’re pooling tips, one of the most important things you should do (aside from ensuring your tip pool is compliant!) is track everything. Having a digital paper trail not only ensures accuracy and prevents tip disputes — but it also gives you the hard data you need to truly evaluate your tip policy.

Has Reddit swayed your opinion on tip pools? Or made you rethink your current tip policy? With Kickfin’s tip pooling software, you can easily customize and automate your tip pooling policy — then track every payment, all in one place. Schedule a demo today!

Restaurant Management

Tip Pooling: Pros and Cons

For restaurant owners looking to boost teamwork and make sure every employee gets their fair share, a tip pool or tip share seems like a natural solution. But like there are pros and cons to tip pooling that every operator should be aware of.

Of course, it doesn’t always make sense to pool tips. (And when it does make sense, tip pooling policies are definitely not one-size-fits-all!)

If you’re on the fence, check out our tip pooling pro-con list below and consider how they would affect your restaurant’s unique dynamics.

What are the pros of tip pooling?

It takes a lot of hard work and collaboration to deliver an excellent guest experience. For most restaurants, the primary goal of tip pooling is to ensure all employees are fairly rewarded for their contributions.

Here are a few of the benefits that tip pooling offers restaurant teams.

1. Improved performance

When executed strategically, tip pooling can bring your team together around a shared goal — delivering a top-notch guest experience — and reward them for doing so.

And when employees are all working toward a common goal, they’re much more likely to work together and go out of their way to lend a helping hand or fill in gaps. This can be particularly true for tip pools that include employees who generally aren’t directly tipped, like bussers, hosts, and back-of-house employees.

2. Reduced competition among servers

Does one section get all of the large parties (aka all the large tips)? Or does your patio section get too hot for most guests during the summer? When employees aren’t sharing tips, your workplace culture might start to feel (overly) competitive and even lead to tension or disputes. When servers start feeling slighted or get hung up on who-got-which-table, not only does that affect morale — it slows everyone down.

An equitable tip pool can keep servers from feeling like they need to keep score, so they can focus on providing top-notch service to all of the guests in the restaurant.

3. Increased focus on training

When you bring on new staff, you typically have them train with your best veteran servers. And when those vets know that their trainee will be part of their future tip pool, they’ll be more invested in the training, making sure to give them a master class in upselling and customer service.

4. More equitable distribution

Unfortunately, customer biases — conscious or not — can impact tip amounts. Whether based on race, gender, or other factors, this kind of discrimination can affect your employees’ livelihoods.

While restaurant operators can’t control if some employees receive preferential treatment, they can help to compensate for those injustices by pooling and fairly distributing tips.

Cons of Tip Pooling

While most restaurants these days run some form of tip pool or tip share, there are some common drawback and pitfalls to tip pooling, which are worth considering before you implement a new policy

1. Top performers may feel negatively impacted

If your best servers are consistently bringing in far more than the standard 18-20% in tips, they might not be so pleased to share with employees who may not have the same experience, talent or work ethic.

Couple that with the fact that some servers can turn tables much quicker than others, resulting in a higher volume of sales and a whole lot more tip income — well, your top earners could start feeling cheated by the tip pool.

And in a tough labor market, if a hardworking employee isn’t happy with their earnings, they likely have other options.

2. Under-performers can slip through the cracks

On the flip side of that: a tip pool could allow lower-performing employees to slip through the cracks. If you’re not closely evaluating the average tip amount (and average check size!), you may miss that one of your employees is struggling with their customer service.

3. Compliance is an added consideration

Tip pooling is regulated at the federal and (usually) state level. Some municipalities also have their own rules around how to legally pool tips. These laws can get pretty complicated, making it all too easy to fall out of compliance without even knowing it. For example: managers can’t participate in a tip pool; but what happens if a manager is also performing server duties? Can you include back-of-house in your tip pool? Does your eligibility for the tip credit change if you operate a tip pool? It’s important to know the answers to all of these questions and fully understand the laws that apply to each of your locations. (Especially if you have locations in multiple states!)

Tip Pooling Pros and Cons at a Glance

That’s a lot of information to take in, so here it is a handy-dandy pro-con chart.

To Pool or Not to Pool?

The majority of restaurants in the U.S. operate some form of tip pool. At Kickfin, we’ve worked with thousands of restaurant teams who participate in tip pooling or tip sharing. We’ve found that often, the positives outweigh the negatives.

But that comes with a major caveat: the best tip pooling teams have been strategic and intentional with their policies — and as a result, no two tip pooling policies look exactly the same.

If you want to set yourself up for tip pooling success, here are a few general rules of thumb.

Evaluate your requirements: Ask yourself why you’re running a tip pool. What needs are you trying to address or problems are you trying to fix? Specifically consider your restaurant type, team size, org chart, and local market to find the best policy for you.
Don’t overcomplicate: It shouldn’t require a degree in calculus to calculate your tip pool. If you feel like it’s getting unwieldy, it’s possible you’re setting your team up for mistakes and tracking issues.
Get feedback for better buy-in: This shouldn’t be a decision-by-committee scenario, but it’s worth checking with management and even some of your team’s unofficial leaders to get their input before running with a new policy. This can help get the rest of your employees on board.
Write it down and run it by your counsel: Your tip pooling policy should be on paper, in black and white. You should also have your legal counsel review it to make sure you’re not inadvertently out of compliance with tip pooling regulations.
Communicate everything: Once you’re feeling good about your policy, share it. Make sure every tip-eligible employee understands how it works and has the opportunity to ask questions.
Ensure transparency by tracking everything: It’s not enough to share your policy. It’s important that every payout is tracked, including how those payouts were calculated. Not only does that streamline accounting and reporting; it also creates a culture of trust with your employees. If there is ever any question around a payout, having a digital paper trail is invaluable.

The best tip pools are automated

Tip pool calculations often happen in a spreadsheet, which is less than ideal. Kickfin integrates with your POS, so you can eliminate spreadsheet math, reducing the risk of human error and ensuring every payout is accurately calculated and tracked. Plus: Kickfin customers can send instant, cashless payouts directly to their employees’ bank of choice.

The result: All the benefits of tip pooling, without the hassles, risk, and time required. (In fact, many of our users can calculate and pay out tips at the end of each shift in under 60 seconds!)

Want to learn more? Request a demo today.

Product and Company News

Kickfin Recognized on the 2025 Inc. Regionals List

Kickfin has earned a top spot on the 2025 Inc. Regionals list in the Southwest region! This recognition places us among the fastest-growing privately held companies in America—and we couldn’t be prouder of what this means for our team, our customers, and the restaurant industry at large.

A Milestone Achievement

As the #1 tip distribution platform, Kickfin is trusted by thousands of restaurant teams to automate tip pooling and payouts. Since 2017, our technology has given managers hours back in their week while improving accuracy, visibility, and reporting for operators.

Only 951 companies made the cut across all regions, and in the Southwest alone, the businesses on this list contributed 13,809 jobs to the U.S. economy while achieving a median growth rate of approximately 106 percent from 2021 to 2023.

Powering the Future of Tip Management

In the past year, Kickfin has taken automated tip management to a whole new level. In addition to exciting new features that make our platform more robust than ever, we continue to add to the list of our direct integrations with the leading POS brands—which currently includes Toast, SkyTab, Square, Heartland, RPOWER, PAR POS, Oracle MICROS, NCR Aloha, and more.

→ See how the Kickfin-Toast integration “changed everything” for HOBNOB restaurants

Kickfin’s POS integrations give our customers the ability to auto-calculate even the most complex tip pools in just a few clicks, which eliminates unwieldy tip spreadsheets, saves managers even more time, and gives operators unprecedented visibility into payout calculations and history.

A Heartfelt Thank You

This achievement wouldn’t have been possible without the trust of our customers and the dedication of our team.

As Justin Roberts, co-CEO of Kickfin, puts it: “We’re incredibly grateful to our customers who have made this growth possible by trusting Kickfin with their tip management needs. This recognition is a testament to the value that automated tip management brings to restaurant teams—helping them save time, reduce risk, and take care of their people.”

We’re honored to be included in the 2025 Inc. Regionals list, and we’re excited to see what the rest of 2025 has in store!