As far as a restaurant’s profitability goes, the lowest of the low hanging fruit is often found in a poorly planned tip tracking program. Owners and operators leave money on the table when they don’t accurately plan the incomes of their support staff and schedule employees to deliver results. They also get into lots of trouble as the government cracks down on under-reporting tips.
The support staff I’m talking about consists of positions like busser, food runner, server assistant, bar back, front desk team, etc. These are folks that are often new to the service industry and are paying their dues in order to earn a position as a bartender, maître ‘d, or server. Usually they’re paid a low hourly wage supplemented by a “tip out” from the servers or bartenders. In general, most state laws forbid “tipping out” positions that don’t have direct interaction with customer service – positions like cook or dishwasher – but service support positions with direct contact with guests are fair game. A majority of states allow a “tip credit” meaning that employers can take advantage of the fact that tipped employees will regularly earn enough money in tips to offset the amount of money the employer needs to pay through wages. For example, Rhode Island allows employers to pay servers a wage as low as $3.86; in Maryland it is $2.77/hr; and in Colorado it is $3.02 (visit http://www.payrollonabudget.com/comp_tipscreditbystate.htm to see your state’s tip credit rules). Some states, however, do not allow tip credits for employers and, instead, force the employer to pay minimum wage regardless of tipped status (Alaska, California, Montana, Nevada, Oregon, Puerto Rico, Washinton).
Whether your business is in a tip credit state or not, employers can take advantage of laws that allow employers to require tipped employees to share some of their tips with a support staff, allowing the employer to save money on payroll expenses while still attracting talent through much higher earning potential. Because it is similar to a commissioned structure (the better you are at your job, the more money you will make), employers, employees and guests are all beneficiaries.
Then how do restaurants fail?
The solution requires thoughtful and thorough planning on the front end in order to create a system that is very simple to execute.
- Determine what you WANT your support employees to make per hour.
- Determine how many support employees are needed to operate at various parts of the day for average volume levels.
- Work with your projected sales volume to estimate the amount of money in the tip pool on any given shift.
- Based on hours worked by the support staff and the lowest amount of hourly wage you can pay them, work backwards to determine how much of the tip pool should be allocated to each position to close the gap between what you WANT each position to make and what you are paying them in wages.
- If there is not enough money in the pool to make sure everyone earns what you WANT them to earn, you can cover the gap by:
– manipulating the amount paid into the tip pool by servers usually 2.5% to 4% of sales-net-of-tax
– increasing wages
– reducing support personnel
- Create a labor template for each level of sales that effectively pays your support staff what you WANT them to make regardless of sales volume
- Establish labor discipline to:
– Forecast sales every week
– Apply the right labor template based on forecast sales
– Track everything that is earned, paid in, paid out, and consolidate onto one summary sheet that you can reference for payroll or you can send to your payroll company for processing.
Once the labor templates are set and tip percentages for each support team workgroup are defined, it can all be programmed into a tracking spreadsheet. All that needs to be done every week is for the General Manager to tell each work group manager which labor template to apply, then manage the staff to be sure they adhere to the written schedule. Because the homework of allocating the tip pool percentages has already been done, payroll is a breeze. Creating labor templates and calculating the tip-in and tip-out amounts is time consuming but it yields a smart labor model that limits risk, substantially reduces labor, establishes labor discipline, encourages productivity, simplifies payroll, and protects you from the IRS. Additionally, you’ll be armed with enough data to implement a server ranking system to reward performance and you’ll be able to accurately monitor hourly earnings in order to protect your support team.
by Ray Camillo
*for help creating a thoughtful tip share system for your restaurant, contact us at www.blueorbiting.com