Where the money actually goes when you leave a tip

This is part 1 of a 3-part series. In today’s installment, we talk some basics.

You might think about a gratuity strictly in terms of rewarding your server for a job well done. But a server’s job does not get done unless everyone else also does theirs. Your food only arrives quickly if the kitchen gets it done. Your drink only arrives after the bartender pours it. You only have a table if the busser has cleared and reset it from the last group.

Any of these things done poorly can impact your impression of the service, even though none of these tasks is performed by your server.

This is why the other staff usually gets a cut of the gratuities. Typically, restaurants use some form of tip pooling. The simplest and most common among these is what we will be discussing today: the tip out.

How tipping out works

In most restaurants and bars, a server will be required to tip out to the kitchen, bar, and whatever other supporting staff help them during their shift. In some cases, it is at the server’s discretion. In most cases, it is a set percentage of total sales.

So the server does not tip out according to how much she made in tips. If the server sold $1,000 over her shift and the tip out to the kitchen is 2%, then she must give the kitchen $20 no matter how much she made in gratuities.

So the more she makes after that 2% (plus whatever she is required to tip out to the bar, etc.), the more stays her pocket. However, this is also the reason that getting stiffed for a tip hurts so much. Whether or not someone tips, the server is responsible for that 2% back to the kitchen.

Mayuko Peerless of Ouisi Bistro recalls one such situation. “I was working at Culpeppers and a friend’s dad came in with his German friends, and they don’t tip. Their bill was like 200 bucks and they left me a dime. I ended up in the back crying because I was so busy and it takes so much out of you energy-wise to spend that much time with a table. At the end of the day, your boss is going to say that you can’t take it personally. But at the same time, how am I going to pay my bills? And I have to tip out on that? It’s just like, why did I serve that table? And it’s coming out of my pocket now?”

The percentage creeps up

So far, we’ve been talking in terms of some arbitrary number, 2% to the kitchen. But the average tip out is actually much higher.

Career server Nathan Collins recalls how the tip out has crept up over the years. He began working in restaurants in 1994, at age 19. Back then, the total tip out was 3-3 ½%. Today, Collins estimates, the average tip out is more in the range of 6-8%.

Back then, as a server, walking out with $100 meant you had a very good night. “It seemed like I blinked, three years went by, and a hundred bucks was minimum.” Quickly, it became standard that he would not seek any job where he could expect to average less than $100 per night. Now it is closer to $150.

This is the number that servers want to know before they take a job. How much can you expect to make for doing a good job, after tipping out?

Similarly, cooks want to know how much they can expect to make in gratuities before they accept any position. When interviewing for a job, it is common practice to ask how much the kitchen averages in tips. A good average is between $1 and $2 per hour, which you then factor into the process of negotiating an hourly wage.

This works out well for employers too. With margins in the range of 10%, employers cannot often afford to pay the kitchen more than $15 an hour. Most back-of-house workers make far less, minimum or close to minimum wage. In large chain restaurants, few members of the kitchen will ever make more than a dollar above minimum. But with gratuities, a dollar above minimum wage suddenly becomes two or three.

A mystery solved?

Collins recalls how, twenty years ago, walking out the door with 10% at the end of the night meant that you had done well. Over time, the tip out has increased by at least 3%. However, so has the standard gratuity, which has risen quietly from 15% to between 18 and 20% today.

This appears to answer the question of how the standard tip has crept up over the years. The extra 3-5% does not necessarily go into the server’s pocket. It gets spread around the other staff because the owner can’t pay them a living wage.

Mark Taylor of Siena says “I’m paying my front of house staff minimum wage and my kitchen is drastically underpaid. But that’s the industry. They’re worth more. But I can’t pay them more because if I pay them too much, then we’re all out of business.”

If the owners can’t afford to pay their staff any more, but the cost of living keeps increasing, the money has to come from somewhere. Where else, but tips?

Is it fair?

Things work the way they are. You still don’t make a good living in restaurants, but you can get by. But notice how the tip out does not reflect the quality of job done by the kitchen. They automatically receive what they are mandated to receive, whether they did well or poorly. Yet, when the kitchen does a bad job, tips decline, and it is the server who loses.

So what is the answer? The only obvious answer is to pay people more, yet that would drive up the price of dining out. It is not a policy that any one restaurateur can easily adopt without risking a major competitive disadvantage. As Taylor points out, “the whole industry has to embrace it.”

It remains a tricky problem with no obvious solution. In part two of this series, we will consider another form of tip pooling and examine the legality of pool systems in general. In other words, things are about to get even trickier.

As always, I welcome your comments and emails.

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