Labor Shortage Solutions Part III: Retention - Compensation Strategies

Compensation strategies

By Andy Cook, Restaurant Consultant: Harbor Foodservice Restaurant Solutions Group

Tip Sharing (AKA Tip Pooling)

I use the term “Tip Sharing” intentionally to reflect the model most common in full or semi-full-service establishment: A primary service provider receives 100% of their guest’s tips and distributes a portion to support positions. “Tip Pooling” is when 100% of the gratuities are collected centrally by the house and distributed by a formula to the qualifying staff.

Wage Inequity

Especially in states like Washington, Oregon, and a handful of other non-tip credit states, the wage inequity between FOH & BOH has been growing wider and wider as minimum wages have risen.

As minimum wages rise in all positions, labor dollars that could be allocated to BOH staff’s hourly wage were spread out to cover all FOH staff. Labor is a commodity, as it’s cost rise, so do the menu prices. The industry also started scheduling less support staff and increasing the section sizes of the servers. The result:

  • Higher check averages that diners calculate the tip off of.
  • Fewer support staff for the servers to tip out.
  • More tables per turn to serve
  • PLUS: a higher base pay

The dynamic this created was that the servers (FOH) were making more and more, while the kitchen (BOH) income potential were flattening. Why? Because of the vague, often tone-deaf language of Tip Pooling legislation that was in place for decades.

Tip Sharing: Laws Prior to 2018

Unfortunately, it all came down to two main aspects of the law:

  • Only the persons who have “more than minimal contact” with the person leaving the tip may have access to it.
  • Tip Sharing cannot be mandated. (There were criteria that allowed for it, but required daily affirmation of the rule)

Tip Sharing Laws Today

I’ll qualify these changes as they’re listed

  • Tip Sharing Formulas can be mandated & enforced
  • It must be communicated and agreed to in advance and in writing

This can be communicated, signed off on, and placed in an employee’s file or at the time of hire.

  • Owners and salary exempt employees are not allowed to receive money from tip sharing

An owner/salaried manager can accept tips from a diner and contribute to the tip sharing/pooling system, they’re just not allowed to receive money from it.

Tip Sharing: Formulas

There isn’t a universal formula. Whether you’re tip sharing or tip pooling, you’ll want to balance a few key factors that include; tip volume, the positions who’ll get access and how much, and why.

If it’s to fairly compensate BOH, I recommend finding alignment in two areas: review sales data to determine how much gratuity is generated in your establishment and how much extra you’d like to see move into your kitchen staff and reverse engineer the formula.


You’d like to see $100 week per cook on average. Look over your sales volume and calculate what percentage-of-sales tip out it would take to cover that and apply that. If your math doesn’t reach that goal, look to your takeout business (especially online ordering) or supplement with a service charge.


BOH shoulders most of the burden for takeout orders, even more so for online orders. While the tip percentage is traditionally lower for takeout, it’s still there. Give it all to the BOH pool.

Service Charges

Some restaurants have been able to pull off the 18-20+% service charge with the accompanying “To compensate our staff equally & provide a livable wage” message. Most have not. Besides pushback from diners, service charges count as sales, leaving you with the tax burden, not to mention leases that are tied to total sales.

We’ve seen more success with adding a smaller sum of 3-5% with messaging along the lines of “Contributes towards a fairer livable wage and benefits for our kitchen staff.” This minimizes the tax and lease expenses, and some restaurateurs successfully include this with tip outs to the kitchen

Signing Bonus vs Surprise Bonuses

A surprising number of restaurants have been offering signing bonuses to varying degrees of success. The pitfalls here include neglecting to structure the bonus with a timeline and clearly defined expectation and demotivating veteran staff who don’t get a piece of the pie.

If you’ve got access to the funds or Covid relief dollars (this is in-line with the Restaurant Revitalization Fund) surprise your staff with cash. When you do, distribute it in person with payroll checks adding a thank you and recognition for their contributions.

The information, insights, resources, and ideas shared are intended to be motivational. The real value comes when new ideas and aha moments are aimed at a goal and powered by a plan. I LOVE my career as a Restaurant Consultant with Harbor Foodservice, if I can help you or your team personalize any of these ideas, I’d welcome the experience with you.

Contact Andy Cook:

More in the series on Retention

Culture & Leadership | Culture & Staff Engagement