September 13, 2018

How To Build a Tipping Structure that Works

How To Build a Tipping Structure that Works
There’s a lot of debate around tipping in restaurants.

But whether you agree with the practice or not, tipping servers and bartenders at restaurants is the norm in the U.S. and Canada, where many restaurant staff receive relatively low wages and depend on tips to bring their earnings up to a livable rate.

That means your restaurant needs to have a tipping structure in place, and creating one that makes everyone happy is a tall order.

Creating the right tipping structure for your establishment will require knowing all about tipping in your industry, which includes knowledge of minimum wage, living wage, customers’ tipping habits, common tip-out procedures and more. It’s not the most glamorous part of running a restaurant, but it has to be done.

Here’s how to build a tipping structure that works - no matter what kind of restaurant you run.

First, determine your restaurant type.

How your tipping structure should be built will be pretty dependent on what kind of restaurant you’re running. Think about it from the diner’s perspective: When you go out to eat at a nice, sit-down establishment, you wouldn’t think about paying without leaving a tip for your server. But when you just pop into your local coffee shop and order a latte to go from the counter? It’s not nearly as compulsory to tip in that situation.

Different restaurants have different tipping structures. Here’s an example of a standard tipping structure by restaurant type, just to give you an idea of where to start.

Full service:

At a full service restaurant, every guest should be tipping a percentage of their check, generally 18-20 percent in Canada and 15-25 percent in the U.S.

Quick service:

At quick service, or fast casual, restaurant, tipping isn’t quite as standard. Oftentimes, diners pay and pick up their food at the counter. Since there isn’t a server bringing food to them, they may have the option to tip at the counter. But it’s just that: an option.

Fast food:

While fast food establishments operate pretty much the same as fast-casual restaurants, with diners ordering, paying and picking up their food at the counter, it’s typically not expected that they tip at all.

Typically, the best staff aren’t working at quick service or fast food locales. They’re more drawn to full service restaurants. A high-quality, full service restaurant is likely to attract a higher end clientele that understands tipping standards, or even tends to tip higher than the standard. The opportunity to make good tips is also likely to attract the best staff.

Second, consider your location.

Tipping culture definitely varies by location. In some countries, it’s not normal (and can even be insulting to your server) to leave a tip. In others, tipping is an integral part of dining out.

For example, in Toronto, it’s pretty standard to tip around 18-20 percent for a full service meal. Just across the U.S. border in Chicago, you’ll find similar tipping practices — around 15-20 percent is standard for a full service meal.

But the wages that tipped employees earn in those places are wildly different. In Toronto, most tipped employees are still entitled to the Ontario general minimum wage, which is currently $14 an hour, with a scheduled increase to $15 an hour going into effect in 2019. Tipped employees who serve liquor directly to guests, which includes bartenders and some servers, currently have a minimum wage of $12.20 an hour, with an increase to $13.05 an hour set for 2019.

In the U.S., on the other hand, tipped workers, whether they serve liquor or not, are entitled to a federal minimum wage of only $2.13 an hour, though some states have enacted their own, higher minimum wages.

Why is this important when creating your restaurant’s tipping structure?

Because tipped workers in Canada are still able to earn a living wage with or without their tips. Workers in U.S. restaurants depend on tips to survive. If you operate a U.S. restaurant and your tipping structure isn’t working, you’ll have a very hard time retaining staff, since they won’t make money without good tips.

Decide on your structure - Tipping Out vs. Tip Pooling.

While your restaurant type and location and the tipping culture in your community should be the biggest factors you take into consideration when creating a tipping structure for your restaurant, there are some other best practices to consider.

Your final major consideration might be the most controversial one: What kind of tip-out structure you’re going to use.

There are two main ways of distributing tips in restaurants: tipping out and tip pooling.

Tipping out means that waitstaff and bartenders collect tips throughout their shifts, and before clocking off, distribute a percentage of their tips to hosts, bussers, runners, the kitchen staff and anyone else who helped them throughout the night without receiving tips. Tip pooling, on the other hand, means tips are collected in one pool throughout the night and then evenly distributed to all tip-eligible employees at the end of the day or shift.

Which one is better?

Well, again, there’s not really a right or wrong answer to that. Every server, bartender, busser, host and manager is going to have an opinion about tipping out versus pooling, and no matter which method you choose, you won’t make everyone on your staff happy. But a general industry rule of thumb is that quick service restaurants, cafes, pizzerias — really any establishment where there’s a counter between guests and staff — are a good fit for tip pooling, since it encourages collaboration and team spirit. Full service restaurants, on the other hand, are more likely to have tip-out systems in place.

If you elect to establish a tipping-out system, you also need to decide how much of the servers’ and bartenders’ tips will go to other staff. There’s a ton of variance in tip-out percentages, but according to Restaurant Business Online, overall tip-outs of 20-30 percent are pretty standard - this generally equates to 3-4 percent of total sales.

A great way to retain the best servers and bartenders is to have lower end-of-night tip-outs, because those staff members can almost always find a job at another restaurant that has a lower tip-out rate that won’t eat into their profits as much. It’s a delicate balance, having a tip-out structure that’s low enough to keep your servers and bartenders happy, but high enough to keep bussers, hosts and runners happy. It may take some experimenting to find the percentages that are the right fit for your restaurant.

Building a tipping structure that works for your restaurant won’t be the easiest task.

But having a solid system in place will ensure you attract high quality staff and keep them happy and providing the best possible service to your guests! 

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