Tipping dates back to the 18th century, where customers in English pubs would attach coins to notes that would be handed to the water.
This monetary incentive was designed “To Insure Promptness”, thus the term “TIP” was born.
Thank us later for that gem of a dinner table factoid.
Further reading (we promise it’s more interesting than it sounds): The Psychology of Restaurant Tipping by Cornell University School of Hotel Administration (PDF)
Tipping has evolved considerably since then, as has the industries within which it can be found. In fact, arguably, when those coins were first attached to notes in English pubs, few would have predicted the same generosity to be expected when enlisting the complementary services of a hotel concierge or saying “thank you” to a home removal company.
Unfortunately, tipping has received a fair bit of criticism and rules bestowed upon it. In some cases, this has resulted in employees not receiving their fair share, and businesses inadvertently implementing tip policies that act as neither a reward nor an incentive.
Thankfully, there is such a thing as tip pooling, which can be a brilliant solution for employees who regularly receive tips.
What is tip pooling?
Tip pool distribution is when either a portion of - or collection of all - tips collected during a shift are put into one ‘pot’. The contents of that pot are then redistributed among all employees.
The benefit of a tip pool is that no one is left out; all staff members are fairly compensated for their work based on the level of gratuity provided by the customers as a whole.
Tip pooling in the UK - the law
Things get a little more complex when it comes to tipping laws in the US and UK. In the latter, for instance, 165,000 businesses pay tips to their workers, which demonstrates how what was once a friendly ‘off-record’ transaction between customer and server has transitioned to a common, monitored form of remuneration.
In the UK, tip pooling falls under the term ‘tronc’, which is believed to come from the French phrase ‘tronc des pauvres’, or ‘poor box’.
A tronc is essentially a pay arrangement which restaurants use to distribute trips, service charges and gratuities fairly among staff. They can be used for both (or a combination of) tip pooling and tip sharing.
In some instances, payments made via a tronc scheme are exempt from National Insurance contributions (NICs). This is the case if the payment is:
- not directly or indirectly allocated to the employee; or
- not paid directly or indirectly to the employee and doesn’t include or represent wages already paid.
To run a tronc in your business, you’re best off creating a troncmaster (often a senior member of the waiting staff) who’s responsible for collecting and distributing tips. By doing it this way, you should fulfil the two requirements above and ensure the payments can be made without deductions for NICs.
Odd name aside, a tronc is recognised by HMRC as good business practice, and highly recommended if you want to comply with the law (who doesn’t?!) and ensure staff are fairly rewarded via their tips.
Why is tip pooling fair?
Let’s think about a super-busy coffee shop that employs multiple staff with varying levels of responsibility.
Dave is in charge of taking drinks orders, which are passed onto Jennifer to be brewed. However, there’s also Lisa and Paul who deliver said order to the table and check in to ensure everything’s ok before passing the bill onto David who processes it through the POS.
If the customer tips Lisa, where does that leave everyone else in the chain? By instead placing that tip into a pool and distributing it equally among all team members, everyone gets rewarded fairly.
It’s hard to argue with the logic, right?
Tip pooling is also recognised by the UK government, and therefore is bound by a number of rules (we’ll get to those later), which ensures neither employer or employee can ‘game’ the system and extract more out of it than they’re due.
Is tip pooling the same as tip sharing?
At this point, you might be thinking “well, this just sounds like tip sharing, and we already do that”. But, they’re not the same.
As it turns out, tip pooling is considerably different to tip sharing. Sometimes referred to as ‘tipping out’ in the US (how long before that term makes its way over here?), tip sharing is when tips are distributed among employees at a set rate for each person.
These rates are usually a percentage of the total tip pot, broken down by tips, sales or category receipts and defined by the employer.
Tip sharing and tip pooling aren’t seen as competing options; they can exist happily in the same operation.
How to distribute tips in tip pooling
So, you want to implement a tip pooling scheme at your business, but how do you distribute the money fairly?
Thankfully, there are a number of methods for tip distribution, whose merits will vary depending on your operation and the way in which the team is setup to work.
- Hours worked. This is a way to distribute all tips across the staff base equally by the hours worked. So, if you have £1,000 in tips and the team worked a total of 1,000 hours, they’ll each receive £1 for every hour they worked.
- Percentage by hours worked. If you want to distribute the pool based on a percentage linked to each role, you can do so. For instance, if there’s a £1,000 tip pool and the waiting staff received 5% of the total tips, the waiting role will be allocated £50 in tips. Each staff member within that bracket then receives a percentage of the funds according to the hours they worked.
- Percentage, regardless of hours. This is just the same as above, but distributes the tip pool equally among the team based on a pre-defined percentage relating to their role, regardless of how long each person worked.
Equally, regardless of hours. This dispenses with all percentages and distributes the tip pool equally among everyone, regardless of any other factor.
The most popular method above is the percentage, regardless of hours. However, the right method for your business depends entirely on the makeup of your operation, your own beliefs about tipping and how the team is most likely to be incentivised.
The pros and cons of tip pooling
Not convinced about tip pooling? It isn’t for every business, which is why we’ll finish this guide with the main pros and cons of this form of tip distribution.
Pros of tip pooling
Here’s why you might want to implement tip pooling:
- It fosters teamwork, because by pooling tips, every employee will recognise that their unique role in the overall process is worth something in the eyes of customers, but that they can’t do their bit without the help of others;
- It eradicates table conflict, where two or more servers argue over who deserves the tip, based on the time they spent dealing with a particular table; and
- It reduces income inequality by all but ridding the business of disparity among earnings by fairly distributing all tips among the front of house team.
Cons of tip pooling
Your fears about tip pooling might be realised if you’re concerned about:
- Resentment among the best-performing waiting staff - why should they receive exactly the same amount of tips if they’re visibly doing more than others?
- A dip in service quality - if you’re a member of the waiting team who knows the quality of their service depends on the total tips you receive, could a tip pool reduce the pressure to serve to your best ability?
- Low performers being rewarded - if Sarah has consistently performed poorly during a particular month, is it really fair that she receives the same level of tips as Dave, who has absolutely smashed it?
Tip pooling is a great way to fairly reward employees, but it isn’t without its challenges.