Tip Pooling, Tip Sharing, Tipping Out: How and Why Restaurants Split Tips

In the hospitality industry, tips (or gratuities) aren’t icing on the cake: they’re often the reason employees can make a living wage. The process of splitting tips — i.e., tip pooling, tip sharing or tipping out — helps to ensure that everyone who contributes to a customer’s experience can reap the rewards of a job well done.

To truly benefit your team and business (without damaging your culture) tip pooling or tip sharing must be done fairly, transparently, and in accordance with current regulations.

Whether you’re in California or Connecticut, here’s an overview of how tip pooling (or tip sharing, or tip splitting) should work, plus some resources to make sure you’re in compliance with the laws in your own state.

Before we dive into various tip-out or tip pay-out methods, it’s important to understand some basic terms and stipulations around restaurant tips.

What is a tip?

A tip, or a gratuity, is a sum of money that a restaurant customer pays in addition to their check amount. It’s important to note that a tip or gratuity is not mandated. In the U.S., a tip is often expected, particularly at full-service restaurants — but it’s not required. Generally, a tip or gratuity is somewhere between 10-20% of the total check amount (before taxes and other fees). However, the tip amount is ultimately left to the discretion of the customer.

Who can receive tips?

Tips belong to employees, period. While restaurants can redistribute tips by way of a tip pool (more on that below), managers and employers cannot participate in tip pools. (With that being said, if a manager receives a tip directly from a customer, they are entitled to that money.)

There are some positions that are commonly tipped — like servers, bartenders, bellhops, valets — but the title isn’t what really matters. Your employees qualify as tipped employees if they “customarily and regularly” receive more than $30 in tips per month.

Non-tipped employees are generally back-of-house staff, like chefs, line cooks, dishwashers and janitors. These people contribute to a guest’s experience, but they don’t actually interface with the guests and therefore don’t have the opportunity to receive a tip.

What’s the tip credit?

Employers in the hospitality industry can legally pay their employees less than minimum wage if their employees’ tips make up the difference. When employers do this, it’s called taking a tip credit, because they’re crediting their employees’ tips toward an employer obligation to pay minimum wage. (Keep in mind: not all states allow tip credits. To check out minimum wage rules for your state, go here.)

Tip Pooling for Restaurants

Now let’s take a look at the ins and outs of tip pooling: what it is, how it works, and different tip pooling structures that your restaurant might consider.

What is tip pooling?

Tip pooling is a practice in the hospitality industry where tipped employees contribute the tips they’ve earned into a pool at the end of a shift. That pool is then divided (often equally, but not always) among a designated group of employees. Simply put, all tips received during a shift are pooled and then redistributed among employees.

When restaurants require tip pooling, they’re subject to certain regulations at the federal level, as well as state-level regulations that vary depending on where your restaurant is located. Illegal tip pools have led to multimillion-dollar lawsuits for restaurants, so it’s important to ensure your restaurant is operating within the letter and spirit of the law before instituting a tip pool.

What is tip sharing?

People often use the terms tip pooling and tip sharing interchangeably. And in reality, there’s no real legal definition for tip sharing. From a legal standpoint, we typically see the term “tip pooling” used as a broad, high-level category for the process of contributing any amount of tips to a pool and redistributing them (including what you might consider tip sharing). Learn more about the difference between tip pooling and tip sharing.

However, while tip pooling is often (but not always) based on an equal distribution of pooled tips, tip sharing is based on percentages that vary based on position. For example, servers may keep 60% of their tips and “share” the other 40% with other employees, including FOH staff like bussers and hostesses, and/or BOH staff like dishwashers and line cooks.

What is tipping out?

Tipping out is essentially the same as tip sharing. In the explanation above, the “sharing” part is actually tipping out. So a server would keep their share or percentage of the tip pool, then “tip out” bussers, hostesses, etc. based on pre-set percentages.

What are the current tip pooling laws for 2022?

The laws around tip pooling or tip sharing (and tip payments in general) are somewhat complex. Here’s a quick rundown of tip pooling laws and regulations.

Who can participate in a tip pool? Managers, supervisors and employers absolutely cannot participate in a tip pool, period. (If you have managers or supervisors that sometimes perform duties of a tipped employee, you can learn more about that here.)
In 2018, the Department of Labor issued a rule change that now allows BOH employees to participate in a tip pool, but only in states where there isn’t a tip credit — so, primarily the West Coast.
Federal vs state tip pooling laws.: There are both federal and state regulations around tip pools. It’s critical to understand both the federal laws and the state laws that apply to your business. Keep in mind: if you operate multiple sites, each site is governed by the regulations where it is located. (In other words, it doesn’t matter where you’re headquartered.)
Tip pooling lawsuits. There have been multimillion dollar lawsuits due to illegal tip pools. Generally, tip pool lawsuits are the result of a) Management or management employees taking part in the tip pool, or b) Employees being unclear about the rules of the tip pool (lack of transparency and communication).
Changes to tipping regulations. Laws continue to evolve as they relate to minimum wage for hospitality workers, the tip credit, and more. Many of these changes are tied to administration changes. (For example: the 80/20 rule has shifted under Obama, Trump, and now Biden.) Changes to these laws can impact your tip pooling policies, so it’s important to stay up-to-date.

Restaurant tip pool policies and formulas

In order to create a tip pool for your restaurant, you’ll need to answer these two questions.

How is the tip pool being created or calculated? In other words, what’s going into the pool? A few common options:

Require all tips to go into the tip pool, then redistribute.
Require a percentage of a server’s total sales to go into the pool. (E.g., a server’s sales for their shift total $500; the server might put 2% of his sales, or $10, into the pool.)
Servers keep a set percentage of their tips, then contribute the remainder to a pool.

Who is participating in the tip pool? We’ll say it again for the people in the back: Managers, supervisors and employers cannot participate in a tip pool. But you’ll need to decide which employees you want to benefit from the tip pool. That could be:

Only servers
Servers and bartenders
FOH staff
FOH and BOH staff

Sample tip sharing policies and methods

Below are a few sample tip pooling policies. Of course, before instituting a tip pool policy, you’ll need to make sure it’s in accordance with both federal regulations and the state regulations that govern your restaurant locations.

Basic tip pool. All tips are pooled, then evenly distributed among participating employees. This happens more frequently with QSR and fast casual restaurants — i.e., the type of establishment that might have a tip jar.
Set percentages. Generally, for percent-based tip-outs, servers keep a majority percentage of their tips, then contribute the remainder to a pool. An employee’s role or position then determines the amount they receive from the pool.

Real world example: Servers keep 70% of their tips and contribute 30% to a pool. Bartenders might get 50% of the pool, hostesses get 20%, bussers get 10%, dishwashers get 10%, and so on.

Points system. Employees are assigned points based on their role, and those points determine the percentage of the tip pool they receive.

Real world example: Let’s say servers get 15 points, hostesses get 5 points, and bussers get 2 points. You’d want to determine the total points for each shift.

4 servers = 60 points
2 hostesses = 10 points
1 busser = 2 points

So, total points = 72.

If total tips earned in one shift is $792, the value of a point is (792 / 72), or $11. So each server would get $165 (15 x $11), each hostess would get $55, and each busser would get $22.

Hours worked. Tip pool amount is divided by total hours worked. That number is then multiplied by the hours each employee worked to determine what they’re owed.

Real world example: 4 servers worked a total of 25 hours. The tip pool totals $450. For every hour worked, servers earn $18.

Server A worked 4 hours, gets $72
Server B worked 7 hours, gets $126
Server C worked 8 hours, gets $144
Server D worked 6 hours, gets $108

Learn more about calculating shared and pooled tips here.

A few other notes on tip policies

Employer tip “deductions”

As stated above: tips belong to employees, not employers. However, when your employees are tipped via credit card, federal law generally allows restaurants to deduct a proportionate percentage of the credit card processing fee from the tip. (That is, if you have to pay a 4% credit card processing fee, you can legally deduct 4% from your employees’ tips. Keep in mind: this is another case where federal law may permit this policy, but states may have stricter rules.)

Service chargers, surcharges and auto-gratuities

Service charges and surcharges aren’t gratuities. If any of those charges go toward employees, they must be treated as wages, not tips. That goes for auto-gratuities, as it’s a mandated charge and not at the discretion of the customer. For more information on these charges, check out our post with labor and employment attorney Beth Schroeder.

What is the best tip-out policy for your restaurant?

Tip pooling can be a sensitive subject. Many restaurateurs have the best of intentions when they decide to establish a tip pool, but it’s not always done in a way that benefits the team.

While everyone plays a role in a guest’s experience, servers typically put in the face time and (arguably) can make or break the tip by managing the experience — i.e., establishing rapport, avoiding mistakes, doing damage control when the kitchen’s backed up or runs out of salmon. Servers and other tipped employees may be less excited about sharing tips with back-of-house staff.

And, unfortunately, there’s a level of distrust that your employees may have around tip pools, as some restaurateurs and employees have gamed or abused the system for their own benefit. While they’re certainly in the minority, they’ve given tip pooling a bad rap.

On the other hand, there are some pros to tip pooling and tip sharing with non-tipped employees. It keeps anyone from having a truly terrible night in terms of tips earned. Also: Your back-of-house staff certainly contributes to the experience a guest has — and they’re working just as hard as their tipped co-workers — but they don’t have the earning potential that comes with being a tipped employee.

If you’re establishing a tip pool for the first time, after ensuring that you’re 100% compliant with state and federal laws, think through the policies and specific percentages that will work best for your restaurant.

Then, focus on transparency: clearly communicate your objectives and policies. Not only is it required by law that you provide oral or written notice, but it’s also important from a culture and trust perspective. If employees understand the thought and logic behind your decisions, they’ll feel confident that you care about the financial well-being of every person on your team.

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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!

Product and Company News, Technology and Software

Kickfin Integrates with RPOWER POS to Automate Tip Distribution for Restaurants, Bars and Nightlife

You heard that right — Kickfin has added yet another partner to our ever-growing list of POS integrations!

RPOWER POS has joined the list of leading POS systems that now integrate with Kickfin so users can fully automate tip calculations and payouts.

RPOWER is a trusted name in the restaurant industry known for its handheld devices, online ordering capabilities, and robust reporting. RPOWER’s dedication to staying on the cutting edge of restaurant tech makes the integration with Kickfin a perfect match!

With the RPOWER-Kickfin integration, restaurant operators can:

Easily build out highly complex tip policies
Calculate tip outs based on roles, shifts and hours worked
Distribute tips directly to employee bank accounts
Establish an electronic “paper trail” for every tip out

( …and more. Dive into the latest Kickfin updates for the full scoop.)

Like all of our integration customers, when RPOWER users activate the Kickfin integration, they’ll have access to our robust Customer Success team (at no extra cost!). We’re here 24/7 to review and build out your tip policy within the platform, so you’ll be up and running in a flash.

Collaboration with Riot Hospitality Group

This integration was especially exciting because we worked hand-in-hand with one of our longstanding customers, Riot Hospitality Group, to ensure the integration checked every box — and that it could handle their complex tip pooling policies.

“Kickfin has been an outstanding partner to Riot Hospitality Group for years,” said J Goldin, the systems director for RHG.

“They had already helped us go fully cashless, which eliminated a lot of risk for our teams. When we decided to completely automate tip payouts, they were a natural choice to help with that as well. We worked hand in hand with Kickfin and RPOWER to ensure the system could handle the intense complexity of our rules, while still being incredibly easy to use for our operators.”

“Kickfin is easy to implement and easy to use. If you’re thinking about trying it, you’ll be glad you did.”

As our co-CEO Justin Roberts puts it, this integration is a “no brainer for RPOWER users who understand how valuable their managers’ time is.”

RPOWER users, we’re ready for you! Schedule a demo to learn how you can activate your integration.

(Not an RPOWER user but want to take advantage of these time-saving features? See if Kickfin is integrated with your POS!)

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.