The Ultimate Guide to Restaurant Tip Management

Restaurant tip management can be confusing and time-consuming, especially if your restaurant has a large staff. Differences in state laws regarding employee wages and tipping, as well as the overall increase in credit card usage, further complicate how tips are shared with your employees.

If you own or run a restaurant, you’re responsible for creating an in-house tipping system that’s fair to both your front-of-house and back-of-house staff members — as well as your customers.

Read on to learn everything you need to know about managing tips in your restaurant — or click here to schedule a demo with our team to hear more about how Kickfin can help manage your restaurant’s tips.

Understanding tips and wages

Federal law requires that everyone employed in the U.S. be paid at least $7.25 per hour. Many states have minimum wages higher than the federally-mandated minimum. However, due to the long-standing practice of tipping, many states have instituted lower paid minimum wages for employees expected to supplement their income with tips. Paying a wage lower than $7.25 to tipped employees helps your business save money, but is not legal in every state and situation.

For example, according to the U.S. Department of Labor, it’s legal to pay tipped employees in Alabama as little as $2.13 per hour if the employee earns at least minimum wage by the time tips are factored in. However, in Washington, D.C., establishment owners must pay tipped employees a full wage of $8.00 per hour, regardless of tips earned. This wide variation makes it important to consult with a local employment lawyer versed in your state’s laws when establishing your restaurant’s tipping system.

What is a tipped minimum wage?

The federal minimum wage is $7.25 per hour, with many states implementing higher minimum wages. However, employers can pay employees who regularly receive tips a lower direct hourly wage, known as the tipped wage. A tipped wage is typically lower than the standard minimum wage and is set by law. The rationale behind these laws is that tips employees receive make up the difference between the rate the employer is paying and the minimum wage.

For the tipped minimum wage system to be valid, an employee must actually earn at least the state’s minimum wage after tips. Most businesses accomplish this by requesting that employees report tip earnings at the end of each shift. The business then adds together the total amount of money the employee has earned in tips versus an hourly wage and divides this figure by the number of hours the employee has worked. If this calculation reveals that the employee did not earn minimum wage, the employer must supplement their income.

What is a tip credit?

A tip credit is the extra money an employer must pay to an employee to make up the difference between the tipped wage and the state’s minimum wage.

Let’s take a look at an example of a situation where an employer might need to supplement a tipped minimum wage. Imagine you manage a restaurant in a state where the tipped minimum wage is $5 an hour and the standard minimum wage is $10 per hour. After working a 40-hour week, one of your employees reports a total tip-out of $180.

However, if your state has a minimum wage of $10 per hour, this means that any of your employees who work at least 40 hours must receive at least $400 in total compensation ($10 per hour). If an employee only earns $380 between wages in tips, you would need to make up the difference by including an extra $20 tip credit in the employee’s check.

If the employee earns more than minimum wage when calculating tips plus wages, no action is taken. For example, you can’t reduce an employee’s wages to $0 if they earn more than minimum wage in tips alone.

How to collect tips

There are a variety of ways your restaurant can accept tips from customers. Some of the most common ways to collect tips include:

Cash: Cash is the most straightforward way to accept tips. Each employee may keep the cash they collect on each check, or pool tips together to split among the staff.
Credit cards: Many customers prefer to put their tips on the credit card they use to pay for their meals. Accepting tips via credit card is convenient for customers, but will require calculation via your in-house system to pay them out correctly.
Third-party payment apps: Some establishments ask individual employees to create payment accounts with third-party payment apps, like Venmo and CashApp.

Employees are allowed to independently collect tips with their user codes. These tips are usually treated as cash for reporting purposes, making this method unsuitable for establishments that pool tips.

Many modern point of sale (POS) systems or terminals used in restaurants have the functionality to suggest tip amounts to customers during the payment process. If using these systems, ensure your tip recording and reporting system complies with local regulations.

How do you combine cash and charged tips?

If your restaurant receives both cash and charged tips, it’s essential to have a clear process in place to handle and distribute them appropriately. This requires keeping a careful record of all tips received — regardless of whether they’re in cash or on a credit card. Most POS systems include a mechanism to collect this information automatically as it’s entered, but you may want to keep an additional backup record.

Store cash tips securely and separately from other funds to ensure accurate accounting and distribution. Establish a process where employees can safely deposit their cash tips in designated envelopes or containers, and have a standing protocol around who can access funds and how. It can be helpful to keep cash tips locked in a manager’s office until distribution.

There are a few options for disbursing credit card tips to employees. You can pay out credit card tips in cash to employees at the end of the day, but this requires taking credit card tips from the restaurant’s cash reserves, which may be limited during slow seasons. You can also include credit card tips on each employee’s wage check.

However, this strategy may require spending more resources on accounting and billing to ensure all employees are fully compensated.

And, keep in mind: Many hospitality employees are drawn to the industry because of the promise of daily payouts. Putting tips on payroll can be hard on your staff, especially if they’re accustomed to nightly tip-outs and have to start waiting days or weeks to receive their tip earnings.

A cashless tip distribution solution can be a helpful tool in streamlining and simplifying the process of distributing tips, especially when combining cash and charged tips. With a cashless solution, charged tips can be directly deposited into individual employee accounts or a centralized tip pool, reducing the need for manual handling of cash or checks. This also reduces the chances of making a costly mistake when distributing employee tips and calculating wages.

Ways to distribute tips to your employees

“Tipping out” refers to the service industry practice where employees who receive tips share a portion of those earnings with other employees who provide a service or support role during the customer’s experience. For example, while servers might directly receive tips, house rules might establish that servers tip out a small percentage of the tips they collect to the back-of-house staff or hosts who do not collect tips.

Not every establishment tips out, with some electing to pay higher wages to non-tipped employees. These are some of the most common tip division and redistribution strategies to consider for your restaurant:

Individual employee tips

The easiest method to handle tips is to allow each employee to keep the tips that they individually earn. Only tipped-wage employees are required to earn tips, so this method empowers those interacting directly with customers to keep the tips that they collect. However, this method benefits only individual tipped employees and may lead to uneven earnings across your staff.

Tip pooling

Tip pooling is a practice common in the service industry where a portion of the tips received by employees is combined into a common pool and then distributed among a group of eligible employees. Rather than keeping individual tips, employees contribute a portion of their earnings to be shared among the team.

Typically, a predetermined percentage or formula is used to allocate the pooled tips among the eligible employees. This is usually based on employee roles and contributions to the overall customer service experience. Some establishments tip out the same percentage to all employees, while others devote a larger percentage to the individuals collecting the tips.

The purpose of tip pooling is to foster teamwork, incentivize collaboration, and ensure all employees involved in providing excellent service receive a fair share of the tips — even if they don’t directly interact with customers or receive individual tips.

However, tip pooling may also foster contempt amongst employees, particularly if employees earning minimum wages receive the same percentage of tips as tipped-wage employees. That’s why it’s important to weigh the pros and cons for your team, ensure your policy is fully compliant with tip pooling laws, and create a culture of communication and feedback channels so you can understand what’s working and what’s not.

Percentage-based tip-outs

Percentage-based tip-outs involve distributing a specific percentage of the total tips earned by an employee to other individuals or groups. By dividing tips by varying percentages, management can ensure that tipped employees receive a larger percentage of their tips while also keeping things fair for non-tipped employees crucial to the customer experience.

For example, let’s say your restaurant has a 20% tip-out policy and a server earns a $100 tip. In this case, the employee will be required to distribute 20% of their tip ($20) to non-tipped employees. Depending on your restaurant, this may include hosts, prep cooks, bussers, and other qualifying employees. The remaining 80% of the server’s tip ($80) is theirs to keep.

Point system tip-outs

Some establishments use a points-based tip-out system. In a points-based tipping system, rather than distributing a percentage of the total tips, a certain number of points are allocated to each employee, and these points are used to distribute the tips among the team.

Let’s take a look at another example using a $100 tip. If your restaurant uses a point system, you might assign a server 50 points, a bartender 30 points, and a busser 20 points. In this example, points correlate to percentages, so a server would keep $50 of the tip. Accordingly, the bartender would receive $30, while the busser receives $20.

Points-based tipping systems allow for a more customized and flexible distribution of tips, considering the different roles and contributions of the employees. The allocation of points can be based on factors such as seniority, job responsibilities, or performance evaluations, enabling a more nuanced approach to distributing tips among the team.

Tax and reporting obligations

The IRS has specific regulations regarding tip reporting, withholding, and taxation. Failing to comply with these requirements can result in legal and financial consequences.

As a business owner, it’s crucial that you take steps to keep tips and payouts in order. Following these tips can help you stay on the right side of the law:

Keep accurate records: Keep detailed records of all tip income, including cash and charged tips. Document tip allocations, distribute tips promptly, and maintain accurate records of tip pools and distributions. This documentation will be valuable in case of audits or employee inquiries.
Implement clear and consistent policies: Establish written policies on tip reporting, allocation, and distribution. Ensure employees understand these policies and provide regular reminders or training sessions to reinforce compliance. This will help prevent disputes with employees, especially those collecting tips.
Educate employees on their responsibilities: Train your staff on the IRS requirements for tip reporting and explain the importance of accurate record-keeping and reporting. Encourage employees to report their tip income correctly and provide them with resources or guidelines to do so.

Remember that as the business owner, the responsibility to maintain financial records falls on your shoulders. This is one area where a cashless tip management system can be majorly beneficial.

How software makes restaurant tip management easier

Even the most organized business owners can find themselves confused when managing dozens of tipped employees. Software, including tax reporting software and POS management systems, can make the process of tracking payouts and income easier. In particular, a cashless tip management system can provide a host of benefits to employers and employees themselves.

Enhanced accuracy and transparency: Cashless systems provide accurate tracking and recording of tip transactions. This helps ensure that tips are distributed correctly and transparently and minimizes the risk of human error that can lead to lawsuits and claims of improper employee payments.

More convenient for employees: Cashless tip distribution allows employees to receive their tips directly in their bank accounts or digital wallets, offering flexibility and convenience. With a growing consumer trend toward digital payments, some employees prefer the ease of non-cash payouts.

Increased efficiency: Cashless systems streamline tip distribution. Instead of manually handling cash, the system automates the process, saving time and reducing administrative burdens. Employees also don’t need to worry about the risk of loss and theft that comes with carrying cash.

How Kickfin helps with restaurant tip management

Kickfin really helps restaurant managers with facilitating the cashless disbursement of tips to eligible employees. Fewer and fewer customers pay for transactions with cash — which is why so many managers find themselves running to the bank on a daily or weekly basis because the safe is empty, and there’s not enough cash to pay out tips.

With Kickfin, you’re able to track your tipped employees’ earnings through your normal POS, and quickly total their tipped earnings at the ends of their shifts. Then, with the touch of a button, you can distribute their tips to them electronically, without having to count cash or stuff envelopes. And your employees’ tips hit their accounts instantly.

Click here to learn more about Kickfin and how our cashless tipping solution can work for you

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Product and Company News

Kickfin Product Updates: New Year, New Features!

We kicked off 2025 with some major (!) updates to our Tip Calculator features.

It was a big release, and we’ll break it all down for you here — but the big headlines are:

More integrations
More speed
More flexibility

If you’re not already using Kickfin — or if you haven’t integrated Kickfin with your POS to automate tip calcs just yet — this is for you! Read on to see how you can use Kickfin’s newest tip calc features to un-clunk your tip pooling process.

More integrations, coming right up

We’re continuing to roll out integrations with the leading POS systems, giving restaurant teams the power to auto-calculate tip pools and shares in a matter of clicks.

(Side note: Kickfin only builds direct POS integrations — not using a third-party solution! — which streamlines your tech stack and keeps your costs lower.)

We were thrilled to add RPOWER to our growing list of integrations, which already includes Toast, Square, SkyTab, SpotOn, PAR and more.

If you’re an RPOWER user and you’re not yet a Kickfin customer, request a demo and we’ll show you the integration in action!

Handle autograts with ease

For servers and bartenders handling large parties, autograts can be great — but for managers, they can turn into a logistical nightmare. Now, Kickfin can help with that…

With this latest release, you can break tips and autograts into separate categories with their own set of rules for distribution. You have the flexibility to manage autograt tip splits completely separate from regular tip outs, so you can fairly reward a hardworking server-bartender-busser trio for a job well done on a 30-top.

Tips & Autograts Broken Out on Tip Data Page

Tips & Autograts Broken Out on Review Screen

With this new set up, you’ll also get more transparency in reporting. You’ll be able to see the breakdown of tips and autograts collected by each user in your reporting dashboards (more on that later!).

Include cash tips in your distributions

You heard that right — we can now distribute shares of cash tips digitally, directly to your employees’ bank accounts. Instead of doing the math on cash tips by hand, you can easily add cash to your tip pool, and we’ll calculate the share among employees for you.

Important note: cash distributions aren’t available for all of our integration partners. Contact us for more info.

Advanced Tip Rules (for even the unruliest policies)

Think your tip policy is extra tricky? Don’t worry — we’ve seen ‘em all. And there aren’t many Kickfin can’t handle, thanks to our Advanced Tip Rules feature.

If you have Advanced Tip Rules enabled, we’ve added a few new capabilities so you can further customize your tip share while we take care of the complicated math behind the scenes. Here are just a few examples of the new features we’re rolling out.

Not using Advanced Tip Rules? Reach out to us if you’d like to enable these features.

Per Segment Tip Sharing

We’ve been calculating tip shares on a check-by-check basis. For example, if you have servers sharing a percentage of tips with bussers, we would only calculate and deduct that percentage if a busser was working at the time that a check was processed. We call this Per Check Tip Sharing.

Now, we’re introducing Per Segment Tip Sharing, which gives you the option to deduct a tip share from every check processed during a shift. Let’s go back to our example — servers sharing a percent of tips with bussers. With Per Segment Tip Sharing, we would deduct a percentage of the server’s tip for every check processed, even if the busser gets cut two hours before the server.

Split Evenly

Would you prefer that all of your support staff take home an even share of their tip pool? We can now make that happen.

Previously, our tip shares entered a pool and were divided among beneficiaries based on how many minutes they worked during a shift, which we call splitting by Time Worked. With our new product update, we’re introducing the Split Evenly option, which enables you to send an equal part of a tip share to every beneficiary that worked within a segment.

More accuracy

In the past, cash autograt payments were lumped in with credit card autograts and credit card tips, resulting in credit card fee deductions on cash transactions. But that is no more!

Now we’re able to deduct credit card fees only where they apply, so you’ll no longer see credit card fee deductions attached to cash autograt transactions.

Plus, we’ve gotten even better at math. With our new update, we can prevent rounding errors, so our tip disbursal should match the tips collected in your POS to the penny.

Revamped and expanded reporting

We added new reporting views to give you more insight into each pay period, individual pay sets, and tip calculations. Here’s a quick look at your new pay period report with expanded filters:

Main Pay Period Report - Filter Bar Expanded

You’ll notice that there are now separate columns for tips and autograts, but you can still view the gross amount earned (tips + autograts = gross).

And it doesn’t stop at the main reporting page. You’ll see this more detailed reporting when you look at individual employee pay period reports, review a specific pay set, or export the information from any of your reporting dashboards.

We know this is a lot of new information to take in — but we’ve got you covered with our full Product Release Recap. Simply log in to Kickfin, click on your name in the upper left corner and select “Support” to access that portal.

Not using Kickfin? Dying to get rid of your old-fashioned gratuity management system? Drooling over these new features? We’d love to have you. Reach out to us today to see how our platform could save you time and money.

Hiring, Training and Retention, Restaurant Management

A Server’s Guide to Managing Large Parties & Securing Better Tips

Do you start getting heart palpitations when you see a large party reservation in your section? This one’s for you.

Maybe your restaurant is a local go-to for corporate dinners, milestone celebrations, and birthday parties…or maybe you regularly get blindsided with 20-top walk-ins when you least expect it.

As every hospitality pro knows, no matter how prepared you are, managing large parties can be tricky. But if you do it right, it can be a fast track to large tips.

So the next time a 20-top bachelorette party drops in and “forgot to make a reservation:” no need to hyperventilate! We’ve got the tips and tricks that can keep you sane throughout a large party — and hopefully help you reel in a well-deserved tip.

4 Tips for Staying Organized

When your 25+ top walks in, getting overwhelmed can lead you to drop the ball on service and hospitality because, hey — you’re just trying to get right right food, to the right person, as fast as possible. But your guests can pick up on when you’re frazzled or frustrated, which can impact their experience (as well as your tip).

Here are a few ways to stay organized and calm throughout service.

1. Get (a little more) familiar with your POS

Every POS system is different, but most have come quite a long way in terms of features and flexibility. There are likely bells and whistles on your POS that you might not use every day, but that can make managing large parties much more seamless.

So use all that tech to your advantage. Set aside time for some extra training or research to understand what your POS is capable of, so that it’s all muscle memory the next time you have a large group sitting in your section.

For example, here are just a few things you should know about your POS as it relates specifically to large parties:

Is there a max number of ways you can split a bill evenly?
How many checks can you create on each table?
How many ways can you split a single item?
Do you need manager permission to add auto-gratuity?

2. Assign seat numbers

The only way to stay sane when dealing with a large party is to assign seat numbers — and stick to them.

You should assign seat numbers starting with your first guest on the left and continue around the table moving counterclockwise. As you put in the first round of drink orders, your POS should allow you to assign items to a seat number. Even if guests move to different seats throughout the meal, stick to their original seat number.

Sure, it’s tedious — but these numbers will be your saving grace when someone asks you for another drink or when they want to split the check by family. No matter how in the weeds you are, take the time to add seat numbers. You’ll thank us later.

When they ask for 15 separate bills, you can just drop each seat number into a new check and print. No need to go back and ask, “who had the fish?”

3. Don’t trust your own memory

As a server, it’s normally a crowd-pleasing flex to take everyone’s order from memory. But when you’ve got 17 people depending on you to make grandma’s 97th birthday lunch a success: Pull out your server book.

Not only are you bound to forget something, but your guests may not feel entirely comfortable either. If they’re worried you’re going to forget they want their sauce on the side, they may be less inclined to ask questions about specials or which dishes are your favorites. And if guests feel like they have to stick to the basics, you’re missing out on all of your upselling opportunities.

Just for the night, don’t be a hero: write down everyone’s order!

4. Bring in some help

Depending on how many guests you have at one table, you might need more help than normal — and there’s no shame in that.

If you’re aware that a big party is on the books, coordinate with your team ahead of time. For example, see if you can have an assigned busser or bartender on call to help you keep drinks filled, tables clean, and guests happy.

Wowing Your Guests

To secure the huge tips that come with large parties, you’ll have to go above and beyond.

Be ready to make suggestions. Being knowledgeable about the menu always reflects well. Explain your specials in detail, offer drink pairings, and accommodate guests with special requests. This is your shot to upsell and increase the bill!

Keep the drinks flowing. No one wants an empty glass. Send bussers around with pitchers to top off waters, and always be ready to grab another round of cocktails.

Stay in contact with the kitchen. Give the chefs a heads up that you’re going to put in a large order so they can prepare accordingly. With more preparation, they’ll be able to get the whole table’s food out in a timely manner. No long waits for everyone to receive their food!

Pre-bus as much as possible. Keep the table neat and tidy, so they have rooms for multiple rounds of appetizers, drinks, and dessert.

Use your seat numbers. You shouldn’t have to serve entrees as if it’s an auction. Instead of announcing each dish to ask, “who had the burger?” you should be able to reference their seat number and pass each entree to the right guest. It’s a simple way to show your serving prowess (and speed up the serving process!).

Even with a crowd at your table, you can go above and beyond on service. Your guests will take notice and show their gratitude on the tip line (more on that later).

Splitting the Bill

You’ve made it through most of the craziness of a large party — but now it’s time to settle the bill. Before everyone closes out their tabs, you might have to navigate a few sticky situations.

Who’s paying?

It’s always awkward to stand next to the table while people fight over who’s taking care of the bill. Here’s what you can do to alleviate some tension:

If someone offers to pay early on in the meal, take them up on it. Go ahead and keep their card so you can run it before the arguments start.
When 3 different people want to pay for the meal, offer to split the bill evenly. They probably won’t take you up on it, but your suggestion should get one of the parties to acquiesce.
Ask how checks will be split at the beginning of the meal to avoid the awkward card dance at the end. You’ll also have an easier time splitting items if you know ahead of time!

To auto-grat or not to auto-grat

Do you want to make sure you get your full 20% tip after a big table runs you ragged? Or would you rather take the risk in hopes that you’ll get an even bigger tip?

If your restaurant has an auto-gratuity policy for large parties, some servers prefer to take the sure thing and hope that your guests feel inclined to give you an extra thanks on top of it. Most guests aren’t offended and even appreciate that they don’t have to do any math — but make sure that they’re expecting the service charge. A simple line like, “We have already included a 20% gratuity in accordance with our large party policy,” goes a long way.

When you have a really fun rapport with a table, it might be the right time to forgo the auto-grat and let your guests decide how much they’d like to thank you. Keep your guests in the know, too! Some may assume that you included gratuity and skip the tip line altogether.

Either way, steel yourself before you look at their final bill. You might be surprised when customers leave less than you expected, or you might be treated to a heavier-than-average tip.

Tipping out

After it’s all said and done, your manager may have a tip out policy for supporting bussers and bartenders who assist with large parties. Make sure you know what to expect to take home after tipping out your team.

And managers, Kickfin makes large party tip outs easy. Make sure that your event bartender gets their fair share of server tip outs, without spending hours with your calculator.

>>Learn more about Kickfin’s newest tip calculation features

Whether you’re hosting a graduation party or taking care of a corporate holiday dinner, be ready to handle it with the same care and attention you give to a two-top — and let the big tips roll in!

Product and Company News

Kickfin Ranked 65th Fastest Growing Company on the 2024 Deloitte Technology Fast 500

We’re thrilled to announce that Kickfin made the Deloitte Technology Fast 500™ list, a ranking of the 500 fastest-growing technology, media, telecommunications, life sciences, fintech, and energy tech companies in North America.

How Kickfin stacks up

Overall, 2024 Technology Fast 500 companies achieved revenue growth ranging from 201% to 153,625% over the three-year time frame, with an average growth rate of 1,981% and median growth rate of 460%.

Our 2,144% revenue growth earned us the 65th spot on Deloitte’s list. It’s another exciting milestone for Kickfin — but more importantly, it’s a meaningful validation of our mission to take the clunk out of tip management, so payouts are faster, smarter and safer for every restaurant team we serve.

Based on Deloitte’s ranking, Kickfin is:

The highest-ranked restaurant tech company on the list
The *only* tip management company on the list
Austin’s fastest-growing tech company

Growth driven by product innovation, demand for automation

Kickfin was the first digital end-to-end tip management solution on the market — and with more than $2 billion payouts to more than 250,000 restaurant employees, we continue to be the largest and top-ranked.

Why?

It comes down to working the way our customers work — and not the other way around. Not only do we automate the tip pooling and payout process for thousands of restaurants and bars; no two tip policies are alike, so we’ve built a solution that gives them the flexibility and customization they require.

With more than $2 billion payouts to more than 250,000 restaurant employees, Kickfin continues to be the largest and top-ranked tip management software on the market.

That’s a big reason we’ve focused on building direct, robust integrations with the leading POS systems on the market. So far, we’ve rolled out integrations with Toast, SkyTab, Oracle, PAR, Heartland and Square — and the list continues to grow.

“In recent years, digital tip management has become table stakes,” said Justin Roberts, Kickfin’s co-founder and co-CEO.

“Operators now understand the significant efficiencies to be gained by eliminating manual tip-out processes. It’s no longer a question of ‘if,’ but ‘how.’ As a direct result of our commitment to innovation and customer success, we’re thrilled to see more and more restaurants select Kickfin to modernize their tip management.”

A big thank-you to our customers who trust us with their payouts, to our partners who support, collaborate (and integrate!) with us, and of course, every member of the Kickfin team.

About the Deloitte 500

Now in its 30th year, the Deloitte Technology Fast 500 provides a ranking of the fastest-growing

technology, media, telecommunications, life sciences, fintech, and energy tech companies — both public and private — in North America. Technology Fast 500 award winners are selected based on percentage fiscal year revenue growth from 2020 to 2023.

In order to be eligible for Technology Fast 500 recognition, companies must own proprietary intellectual property or technology that is sold to customers in products that contribute to a majority of the company’s operating revenues. Companies must have base-year operating revenues of at least US$50,000, and current-year operating revenues of at least US$5 million.

Additionally, companies must be in business for a minimum of four years and be headquartered within North America.

Ready to take the next step?

See how brands like Walk-On’s, Marco’s, Bar Louie and more are automating tip pooling and payouts with Kickfin. Schedule your 10-minute demo today!

Industry Trends

How the 2024 Presidential Election Could Affect Taxes for Tipped Employees

It’s an election year, in case you haven’t heard! 😉 This one has major implications for tipped employees — specifically, when it comes to taxes.

It’s no secret that our Democratic and Republican candidates are running on very different platforms. But when it comes to tip regulations, Vice President Kamala Harris and Former President Donald Trump actually both support reducing taxes on tips.

A little context on taxes and tips

We’re just going to state the obvious: For the average American, tax reporting can be pretty, pretty confusing. For the millions of employees working in tipped occupations — well, that creates another layer of uncertainties.

(Do I have to report my tips? Do have to report my cash tips? Will anyone know if I don’t report my tips? What happens if I don’t accurately or fully report what I earned?)

Historically, there’s been a trend of hospitality employees underreporting cash tips to prevent higher tax burdens. And while this may reduce what employees owe Uncle Sam in the moment, there can be downsides: e.g., if they find themselves eligible for unemployment, if they’re trying to qualify for an auto loan or mortgage, etc.

However, that urge to underreport could be relieved in the near future, given the tax code changes both of our presidential candidates have proposed. The TL;DR: Both Trump and Harris have voiced their intention to relieve some of the burden on tipped workers in restaurants, bars, hotels, and other service positions.

Here’s a quick summary of each candidate’s plan, as well as some potential impacts for restaurant employees.

Trump’s plan for tipped employees

Trump shared his plan to reduce tipped income tax burden at a rally in Las Vegas — fitting for a city that’s built on the gig economy. Nevada is home to the highest concentration of tipped employees who work in the many hotels, casinos, and restaurants that millions of tourists flock to annually.

During the rally, the former president announced that he would make tipped income exempt from federal income tax, stating it would happen “right away” when he takes office.

Since speaking at the rally, Trump has not yet clarified what this would mean for tipped employees. Many servers want to know if this is an exemption just on federal income tax or if the proposal includes payroll taxes (social security and Medicare).

Harris’s tip tax proposal

Harris also took the opportunity to speak on her tipped income policy while visiting Nevada. Much like Trump, she knew she’d have a captive audience when it comes to tipped earnings.

Her proposal promises to exempt tipped income from the federal income tax, but she has made clear that tips will still be subject to payroll taxes. While not yet confirmed, campaign insiders say Harris is considering placing some guardrails on her plan — like a caveat that the tax exemption only applies to employees earning less than $75,000 per year.

Is one plan better than the other?

In short: probably not. (Most service and hospitality workers do not earn above the $75,000 threshold that’s been suggested by the Harris campaign.) So either way, servers, bartenders, and hospitality staff can expect to see a lower tax burden during the next administration.

But what does that look like in practice?

Most tipped employees aren’t receiving their tips on payroll — they’re walking out of every shift with their earnings for the night, deduction-free. Instead, the taxes are paid on payroll out of their hourly earnings, which is why many servers get $0 paychecks every two weeks. With a reduced tax burden, most servers will see the difference in higher paychecks.

On the other hand, economists are wary of the impact of eliminating taxes on tips, citing the reduced funding for social security and Medicare. And with so much negative sentiment around “tipflation” these days, experts also speculate that a reduced tax burden may result in even more hesitance at the tip screen.

Increasing minimum wage

We’re closely following campaign promises about an increase to the minimum wage — especially in regards to the tipped minimum wage and the tip credit.

Minimum wage earners have been eyeing an increase, noting that the federal minimum wage of $7.25 per hour hasn’t increased since 2009, and servers, bartenders, and other tipped employees have been earning $2.13 per hour for over 30 years. An increased minimum wage paired with the reduced tax burden could make a major difference for service workers trying to keep up with the rising cost of living.

In the Harris camp, removing tax on tips is just part of the plan to take some pressure off service workers. While Harris hasn’t shared a detailed plan for bumping up the minimum wage, she has indicated that she would support an increase.

In previous election cycles, Trump stated that he would consider a minimum wage increase, but he has not shared his opinion on the matter during the 2024 presidential campaign.

Of course, we’re a ways out from any real policy changes actually shape — but if you’re looking to make your tip management process less taxing in the interim (see what we did there?), Kickfin is here for you! Check out how you can use Kickfin to auto-calculate tip pools and send payouts directly to employees’ bank accounts in seconds.