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Article on tipping out from The Orlando Sentinel

Waiters can keep the change – but not all of it

By Sandra Pedicini, Orlando Sentinel

12:28 a.m. EDT, March 14, 2011

When you leave your waiter or waitress a tip, chances are they don’t keep all of it.

It’s common in the restaurant industry for servers to share part of their tips with other workers, sometimes voluntarily, but often because they have to.

But many workers have balked at what they describe as unfair tip-sharing policies, and some have sued. Starbucks, Chili’s, Outback Steakhouse and Orlando-based Hard Rock Café International are among companies that have faced lawsuits.

Restaurant workers often depend heavily on tips because in many states, employers can take “tip credits” and pay regularly tipped employees less than minimum wage — in Florida, as little as $4.23 per hour.

Read the rest of the article here:,0,1299262.story

Tipping out is something that most waiters grudgingly tolerate. Afterall, we are told upfront what we are required to tip out. Problems generally occur when tipout policies change, and several companies who have changed their policies are discussed in the article, mainly because their staff went to court against them.

In states where there is no “tip credit”, i.e. hourly wage is at least minimum wage such as Oregon, there really aren’t too many restrictions that can be made to the tipout. Kitchen personnel are often part of the tip pool in those states. In states that have a tip credit, or allow sub-minimum wage, tipouts are restricted to personnel who directly serve the public.

As much as I respect the work that line cooks and dishwashers do, I’m against the mandatory sharing of tips with them. Their positions are production positions and they are paid a commensurate hourly wage. While they generally make less than waiters overall, they also get raises periodically and have the benefit of a steady and predictable income. And, while generosity is a good thing, I also don’t like the idea of voluntarily sharing tips with them, only because it sets up the possibility of unfair delivery of the food. It’s only human nature to wash the hand that feeds you and it feels a bit like extortion to be forced to pay to get your food in the order that it was sent to the kitchen, or to have someone who’s greasing the kitchen get a better plate than someone who isn’t.  Having said that, if a waiter ever goes out for drinks with a kitchen person, I feel like they should buy at least a couple of drinks for the kitchen person, if not pick up their tab. After all, it’s a fact that waiters generally make more money than kitchen personnel. And they work very hard under hot and dirty conditions. Of course, they are doing what they want to be doing and many of them are working toward the goal of being a chef one day. Waiters really don’t have any upward mobility in their profession, except to work at another restaurant that offers a higher tip income.

Most tipouts take between 15 – 40% of a waiter’s tips. The average that I’ve seen is more like 25 – 35%. Many waiters, including myself, usually grease our backwaiters a little extra as well.

Tipouts can be done two ways – they can be based on sales or they can be based on tips. My current job is the first that I’ve had that has based it on tips, and I definitely prefer that way. That way, everyone benefits or suffers from how well the guest pool has tipped. With sales, you’re stuck at a percentage regardless of how great or poor the overall tip percentage has been. I guess I understand the idea behind tipping on sales. You don’t want the possibility of a waiter hiding cash tips from his or her support staff. But I highly encourage restaurants to consider basing the tipout percentage on tips, not sales. It’s a much fairer system. A waiter can’t complain that they’re tipping out on a stiff.

Anyway, I’ve discussed tipout in the past. If you want to revisit the topic, go here:

One bit of disturbing “news”, if you will; something that was discussed in pt. 2. The Department of Labor used to have “fact sheets” on how tipped employees are treated. Those fact sheets have disappeared from the DoL website. Here is what it said about tipping out:

“Tip Pooling: The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), busboys/girls and service bartenders. Tipped employees may not be required to share their tips with employees who have not customarily and regularly participated in tip pooling arrangements, such as dishwashers, cooks, chefs, and janitors. Only those tips that are in excess of tips used for the tip credit may be taken for a pool. Tipped employees cannot be required to contribute a greater percentage of their tips than is customary and reasonable”.

I don’t know if they have just changed the website and haven’t added the old worksheets back in, or whether because of states like Oregon that specifically allow kitchen employees to share in the tip pool, they can no longer make that statement. And, with other court rulings that have impacted on tipouts, perhaps the governance of tipouts is in flux now. Therefore, it’s best to discuss with your local Wage and Hour people or with a local attorney that specializes in labor law what the current thinking on tipouts is if you have concerns about how your tipouts are being handled.

Tip definitions

Tips– voluntary but expected payments for services rendered. Also inaccurately called gratuities. Inaccurate in the sense that they aren’t considered gratuities in the usual sense for tax purposes. Even the IRS confuses this on occasion.  True gratuities are not considered taxable income (subject to limits) in any other area other than in the “tipped employee” realm. It is my opinion that the IRS needs to address this and eliminate the term gratuities whenever it’s discussing tips.

Tip Pool– any arrangement where all employees throw their tips into the hat. Tips are then redistributed according to pre-agreed to terms.  In the case of bartenders, this redistribution can occur as a percentage of the number of hours worked as shifts can vary. In the case of servers, this redistribution can follow the same guidelines as a traditional tipout (see below). 

Tipout – an arrangement where each individual server is responsible for distributing a portion of their individual tips to other tipped employees in payment for services rendered. this is usually expressed as a percentage of either total sales or total tips.

Autogratuity (autograt) – a specialized service charge added directly to the bill in lieu of a voluntary tip. Usually noted on the menu as something added for specific circumstances such as a table exceeding a certain number of people. Normally computed on the pre-tax total.

Service charge – an extra charge in lieu of tips. This is usually applied to the entire bill for every table in the restaurant regardless of size. Occasionally, this is a charge imposed for a booked private party. Normally computed on the pre-tax total.

Credit card fee deduction from tips – exactly what it means. The fee that a business pays the credit card processor. Not allowed to be deducted in all locales. Check your local state regulations.

Things to know – employers are not allowed to take any portion of a tipped employee’s tips with the exception of credit card fees. In some states, employers are allowed to deduct for walk outs or breakage, but in some states, this is expressly forbidden. Tips are considered to be the “sole property” of the tipped employees except that tipouts are allowed as long as it’s a prior agreed to arrangement by all employees affected. Service charges and autogratuities are not considered tips and are therefore the property of the employer. In the case of autogratuities, these are normally treated as tips by employers although employers aren’t bound by law to do so. In the case of service charges, in some cases, they are used in toto to pay all wages of tipped and non-tipped employees. In some cases they are treated as simple tips and in some cases, they are used to “tip out” kitchen employees and private party booking managers. This is totally legal.

I hope this clears up the distinctions between these different terms. They are sometimes confused and misunderstood.

Tipout pt. 3

So, how does this tipout thing work?

There are a couple of different ways it might work.

You might tipout a percentage of your total sales or you might tipout a percentage of your actual tips.

You might also tipout your bar a percentage of alcohol sales instead of a percentage of all sales. I even worked in a place where I tipped out the bar on all alcohol sales minus wine sales (we actually poured wine by the glass at the table and fetched our own wine out of the cellar).

You tip out by running a percentage of either your tips or your sales. Then, you take the amount of money that you get from the house, add in the amount of cash sales and subtract out any bank that you came to work with. Then you pay your coworkers with cash out of that. You then subtract it out of your claimed tips. If you have a TRAC sheet, there’ll be a spot for the various tipouts and you’ll subtract them, coming up with your actual take home tips, and this is what you declare. If you tip out on the computer, make sure you subtract them from your tips before declaring (you don’t want to over-declare. And there’s a weird case of some backwaiters also having to tip out the bar as well. If this is the case, and you tip out based on tips, it’s far to subtract the amount of their tipout to the bar before you calculate yourtipout to the bar. Otherwise, the bar will get double tipped on that amount of tips.

The most fair way to tip out backwaiters and the bar is based on your actual tips. This way everyone shares in the pain of bad tips and gets the benefit of really good tips. Plus, if a waiter gets stiffed by a table, they don’t have to “pay for waiting on that guest”. If you have to tip out based on sales, you should ask your manager if you can exclude the amount of sales covered by a stiff. This is really only fair for everyone. However, a server should never pretend that they got stiffed simply because they got cash on a credit card transaction. This is even more despicable than a guest stiffing a server. It’s a server stiffing his or her fellow co-workers. If you are currently tipping out on sales, you might broach the subject of changing it to tipping out on actual tips with the powers that be and explain how it’s fairer. BTW, generally speaking, 20% tipout on tips is about the same as around 3% – 4% of total sales depending on well you did percentage-wise.

If you want to grease your backwaiter, by all means, do do. Grease is extra money over and above the actual amount that you are supposed to pay. However, you can’t claim this as part of your tipout for tip reporting purposes. For instance, let’s say that you are supposed to tip your backwaiter 5% of your total sales and you had sales of $500. You tip them out $25 and then you give them an extra $3 because they rocked. You should still only claim $25 in tipout. That’s because that’s the amount that they’re going to claim. Technically, grease is a “gift”, an appreciation for a job well done, not payment for services rendered. In the case of an IRS audit, they’re going to wonder why you’re claiming $3 more than your backwaiter is. Sucks, doesn’t it? Yep. and most of the time, it won’t matter, but why take the chance? Basically, you should do the right thing anyway and we’ll be doing a post in the future on why you should claim every penny of your tips (hint- it’s the law!) I’m sure that will be popular with my fellow servers – ha!

The US Labor Department requires that all tipouts be “fair and customary”. This is fudging language. They don’t won’t to be in the business of dictating. what is“fair and customary”. Well, it’s probably not what you have to do, right? Nobody seems to think that tipout amounts are fair. Everyone wants it to be lower.

I’ve seen everything from about 10% of total tips all the way up to 45% of total tips. currently, I have to tip out 33% of my total tips, which some people would think is high. However, my last job required 7% of sales, which usually translated to between 40 and 45% of tips! I worked in a brewpub where we tipped the bartender 10% of total alcohol sales. In that particular restaurant, 10% of alcohol sales usually equated to about 1% of sales or 5% of tips, which is pretty standard these days for bar tipout. there are just certain percentages that correspond whether you are talking about tipping on sales or tipping on tips. They usually fall within a percentage point or two regardless of how the night went in terms of tip percentage (unless you either had a spectacularly good or spectacularly bad night).

Finally, why do I have to tip out the day bartender when he or she usually doesn’t have to make me any drinks (most people don’t drink alcohol at lunch tables). Well, dear friends, you are making it possible to even have a bartender available in case you do. Remember, most day bartenders aren’t going to make very many drinks even for their own guests. Don’t worry about the “fairness” of it, just do it. And do it gladly, you punk. Got it? Quit yer bitchin’.

If anyone has any specific questions about the topics that I covered, or if you’re new and still confused (and believe me, it can be a little bewildering and hard to explain to a newbie), feel free to ask your question in the comments section.

This concludes our overlong series on the subject of tipout.