Running a successful restaurant involves not only food and hospitality but also strict attention to employee pay structures and legal compliance. One of the most complex areas operators face is deciding how to handle tips, tip pools, and service charges. Each option has specific advantages, challenges, and regulatory requirements. This guide outlines the key considerations for each model, highlights compliance risks, and explains how Forte supports operators in managing these processes effectively.
What Is a Tip?
A tip, also referred to as a gratuity, is a sum of money voluntarily left by a guest in addition to the check total. In U.S. full-service restaurants, tips are customary and typically range between 15 and 20 percent of the bill.
Key requirements:
- Ownership: Under federal law, tips belong exclusively to employees, not the business.
- Management exclusion: Managers and supervisors are prohibited from taking a share of employee tips.
- Eligibility: Tipped employees generally include servers, bartenders, and bussers. Back-of-house employees do not qualify unless the business pays the full minimum wage and does not apply a tip credit.
- Tip credit: Some states allow employers to pay a subminimum base wage if tips bring employee earnings to or above the federal minimum wage. Other states prohibit the use of tip credits entirely, requiring payment of the full minimum wage in addition to tips.
While tips directly reward servers and are familiar to guests, they can create pay inequities between front-of-house and back-of-house staff. They also require operators to remain vigilant about compliance with the Fair Labor Standards Act (FLSA) and state labor laws.
Traditional Restaurant Tipping
Traditional tipping refers to the practice where customers leave a tip for the individual server or bartender who provided their service. This method remains the most common model in casual and full-service restaurants.
Advantages: Tips strongly incentivize staff to provide excellent service, and customers are accustomed to this structure.
Challenges: Compensation can become unbalanced, with front-of-house staff earning significantly more than kitchen employees. Additionally, compliance requirements around tipped wages and recordkeeping are stringent, creating an administrative burden for operators.
Restaurant Tip Pooling
Tip pooling consolidates tips received by employees into a shared pool, which is then redistributed among eligible staff. This system typically includes servers, bussers, and bartenders, and in certain cases may extend to back-of-house staff if no tip credit is taken and all employees are paid the full minimum wage.
Advantages: Tip pooling helps balance earnings across roles, encourages collaboration, and reduces pay disparities that often create friction between front-of-house and back-of-house teams.
Challenges: Strict compliance requirements apply. Under FLSA §3(m)(2)(B), managers, supervisors, and owners are prohibited from participating in tip pools. Employees who are accustomed to higher individual earnings may also resist the redistribution process.
Restaurant Service Charges
A service charge is a mandatory fee added to the customer’s bill, often 18 to 20 percent. Unlike tips, service charges are considered revenue of the business, and operators determine how they are allocated. Service charges may be distributed to employees, applied toward benefits, or retained by the business to offset payroll costs.
Advantages: Service charges provide consistency and predictability, particularly in fine dining, banquets, and catering environments. They allow operators to allocate funds across all employees, including back-of-house staff, thereby reducing wage disparities.
Challenges: Customers may perceive service charges as hidden fees if not communicated clearly. Employees may also feel disconnected from direct performance incentives when compensation is no longer tied to guest tipping behavior.
Tip Pooling Laws in 2025
The Department of Labor enforces specific regulations governing tips and tip pooling:
- FLSA §3(m)(2)(B): Employers, managers, and supervisors are prohibited from keeping any portion of employee tips.
- Eligibility: Tip pools may only include employees who customarily and regularly receive tips. Back-of-house staff may only participate when the employer pays the full minimum wage without applying a tip credit.
- Dual jobs rule: In late 2024, the DOL reinstated the traditional “dual jobs” rule, removing the 80/20 limitation on the proportion of time tipped employees may spend on non-tipped duties.
⚠️ Compliance reminder: State laws may impose stricter requirements than federal law. Multi-unit operators should evaluate compliance individually for each location. More information is available on the Department of Labor’s guidance on tipped employees.
Choosing The Right Model
So, what should you use when? For casual, full-service restaurants, traditional tips are usually the best fit, though adding a fair tip pool can help balance pay across roles.
In high-volume or team-oriented concepts, pooling often makes more sense because it spreads rewards evenly and fosters collaboration.
And in fine dining, banquets, or catering, service charges create consistency and give operators the flexibility to share earnings across the entire team.
How Forte Supports Operators
Forte simplifies the complexities of managing tips, tip pools, and service charges by providing integrated tools designed for restaurant operators.
- Tip jar cash tracking: Operators can enter cash tips directly into Forte, ensuring they are reflected in over/short reporting and accurately included in the distribution process.
- Tip pooling workflows: Forte offers functionality to manage and distribute pooled tips, particularly suited to counter-service and high-volume environments.
- Service charge accuracy: Forte automatically identifies when surcharges or service charges are configured as tips in the POS, ensuring proper classification in financial and labor reporting.
These capabilities enable operators to ensure fair distribution of pay, maintain accurate reporting, and remain compliant with wage and labor regulations, all while reducing manual administrative effort.
Request a demo of Forte to learn how our solutions streamline tip, tip pool, and service charge management.