A Hotel’s Comprehensive Guide to Managing Tips and Gratuities

The fair, accurate, and timely management of tips and gratuities is an important responsibility for department managers in the hospitality industry. According to 2023 metrics from Tips+Gratuities by Evention, on average, hotel outlets manage over $400,000 in tips annually. While tips are typically linked to client-facing roles – servers, bartenders, etc. – they can be helpful to the entire service team. This includes those working behind the scenes such as hosts, barbacks, bussers, and food runners. Establishing fair benefits for every employee, regardless of their role, can be achieved through the implementation of a tip pool or tip sharing processes, that are often maintained in excel spreadsheets.

Evention manages over $40,000 in tips annually

For managers looking to start 2024 by evaluating your approach to tip management:

Here is Evention’s three-step guide of best practices and distribution methods to help establish or update your current processes.

1. Review and Simplify

Every business is unique, and what works in some outlets may not be a one-size-fits-all solution. Start with a shortlist and discuss with your employees to determine if a tip pool is suitable and the most effective distribution method for your team.

    Tip Distribution Methods and Scenarios

    By Business Shift: This method consists of dividing the workday by sections, such as breakfast, lunch, dinner, and/or brunch, and distributing tips from each shift between tip-eligible employees who were working that shift.

    Scenario: Ideal for medium to large-sized restaurants with a consistent flow of customers throughout the day. Ensures fair distribution based on each shift’s performance.

    Business Shift Tipping
    Hours Worked Tipping

    By Hours Worked: Determine the total tips for the day and divide that total by the hours worked by all tip-eligible employees.

    Scenario: Suited for restaurants with different levels of business throughout the day – 80 covers for lunch, 200 covers for dinner, etc. Distributes tips based on the individual contributions of each team member relative to their working hours.

    By Position: Distribute tip pools by job or role, with pre-determined percentages.

    Scenario: Beneficial for restaurants with specialized roles, such as fine-dining restaurants. Sets predetermined percentages for different roles, recognizing the unique contributions of each position.

    Position Tipping
    Points Tipping

    By Points: Assign points to each role based on the level of responsibility during the shift. For example, servers may receive 40 points, bartenders 20 points, and bussers 5 points.

    Scenario: Effective in large and diverse restaurants. Assigns points based on the level of responsibility, ensuring fair compensation for the varied roles within the team.

    2. Transparency is Key… And The Law

    Evention Tips+Gratuities implementors recommend sticking to one distribution method, steering clear of case-by-case rules, such as one hybrid role or rules unique to individual employees. These one-off cases can be difficult to manage and cause confusion or worse, distrust. Consistency enhances clarity and ensures a fair and predictable system.

    The Fair Labor Standards Act (FLSA) mandates that employees must be informed about the tip pooling system, including the percentage of tips allocated to the tip pool and which employees are eligible to participate. Once you’ve decided on your distribution method, explicit communication is necessary. It’s recommended to provide clear written documentation to avoid any confusion or misunderstandings.

      FLSA Highlights

      For more information about gratuity compliance, our previous blog “Is Your Gratuity Program Compliant?”  shares additional insights from our gratuity specialists.

      3. Automate Where You Can

      Implement digital tools for tip tracking and distribution to streamline the process and minimize errors. Upgrade from your Excel spreadsheet by automating some or all of your processing and disbursement functions. Spreadsheets get passed down from one manager to the next resulting in formula errors and costly write-offs that add up in the long run. By investing in automated gratuity distribution solutions, establishments can streamline intricate processes, minimizing the potential for errors inherent in manual methods.

      One automated gratuity distribution option is Tips+Gratuities by Evention. Tips+Gratuities serves as a centralized hub for tip and gratuity processing, providing real-time tracking capabilities that guarantee the accurate recording and allocation of tips to each deserving team member. By seamlessly integrating your POS system directly to payroll, these technological advancements offer more than just efficiency – they instill confidence among employees by providing a seamless and more reliable process.

        Upgrading Your Gratuity Management System

        The importance of a well-established gratuity management system in the hospitality industry cannot be overstated. Navigating the intricate landscape of gratuity distribution is a crucial responsibility for managers. Evention’s three-step guide provides a pragmatic approach, encouraging a thoughtful evaluation of distribution methods, emphasizing legal compliance, and advocating for the strategic integration of technology. Whether aligning with business shifts, hours worked, job roles, or embracing point systems, this guide offers actionable insights to establish or refine gratuity processes. By incorporating these insights, managers can create a system that works seamlessly, contributing to smoother operation and improved collaboration. Here’s to a successful and well-compensated year ahead.