The best way to keep employees happy is to pay them what they deserve – and that includes giving them their fair share of tips.

Tips are vital for many employees in numerous large-scale service industries, such as hospitality, tourism, physical services (like massages) and many more. Ensuring that employees get their share is important for keeping them happy, supporting their living standards, and showing your appreciation towards effort and work.

Distributing tips, therefore, is important to streamline processes from your end while keeping your employees happy. We share four of the best ways to distribute tips.

Four Ways to Distribute Tips

Distribute Tips

The Work Roles System 

Usually, employees who play a larger role in helping the business should be given more tips than others.

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A classic example would be the kitchen in a restaurant – they create and cook the meals, therefore, have a greater impact on the quality of the business. The same goes for the server staff.

Depending on how you run your business, splitting tips between employees based on roles can be a smart and fair way to ensure everyone gets what they put in.

The Hours Worked System

From Starbucks to your local cafe, dividing tips based on work hours is one of the most common options available.

The reason is based on sound logic: it’s not necessarily fair for those who worked longer hours, particularly during peak times, to split tips with those who only worked half the amount of time.

It’s a fair and logical system that works for almost all service-based industries.

The Points System

A points system is based on awarding tips on performance. The better the performance and service, the better they should be rewarded. Similar to the “hours worked” approach, it ensures that those that work hardest and longest in the business get their fair share of tips.

It ensures that your staff are always delivering their best, increasing productivity and motivation as an added benefit.

The trickiest part about it is ensuring that you award the points correctly and fairly, but this can be managed once you establish and monitor a points system.

The “Honour” Percentage Tip-Out

This process might sound a tad confusing, but it does offer a lot of advantages. You can distribute tips to your staff based on a percentage of the tips they earned.

An example would be if a bartender gets $300 worth of tips per night. They, therefore, should be awarded more than the hostess.

A typical percentage split would be 30% to the bartender, another 30% shared among the servers, while the cooks and hostess split the remaining 40%.

Individualized Tips

For many services, customers want to tip the service provider directly (e.g. the massage therapist, the waiter and so forth), hoping that they would get all it.

This does offer a wealth of valuable benefits, such as putting the control in the customer’s hands and incentivizing staff to provide excellent customer service (and being rewarded handsomely for it).

Keeping track of the amount of “additional” money paid out to each meal or service (aka, the tips) is the best way to pay out employees. 

However, to ensure that less opportune employees are rewarded, opening up another tip line for these services can help balance out the tips in general.

How to ‘Pay’ Employees

Now that you have a few ideas on distributing tips, the next step is actually to pay them. With various tipping options available, from cash payments to electronic transfers, it’s important to streamline the process to eliminate any concerns. Here are some tips that can work for your business:

  • Cash payments, which can be distributed at the end of the week or shift. This is a common approach to many service industries but requires managers and owners to be exact when handling cash. 
  • Advanced business payment solutions mean you can easily distribute the tips digitally. This method can reduce the administrative burdens, ensuring that dividends are paid out to the correct employees in the right amounts.
  • Include tips as part of the weekly payment. While this is simple and straightforward, you will have to consider how this impacts your payment process, taxes (yours and your employees’) and if you can claim any deductibles.

Ultimately, it all comes down to what streamlines your processes best, improves your payment and keeps your employees happy. We hope that this guide can help you going forward.

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