What Is a Tip Out? Restaurant Tipping Methods

Cody Cromwell
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How Tip Out Works

In America, most tipping is done in large restaurants. In particular, many patrons tip a certain percentage of their food bill, usually in the neighborhood of 18-20%, to the restaurant’s wait staff.

But, tipping has its rules. In particular, some people believe that splitting the tip with more than one server is an automatic signal of consideration for their respective work. Or, some people believe that splitting the tip at all means that the service was substandard and unfair.

But, tipping is not just an American phenomenon’. We’ll look at tipping practices in other cultures as well. But until then, here’s a quick glance at how tipping works in America.

Choosing a Tip Out Method

Tip out methods can be confusing. Which one is right for you and your restaurant staff?

In a restaurant, the service staff works for a percentage of the total tab. Usually, this is based on the type of establishment. For instance, a fine dining restaurant may pay a percentage base on the check total, while casual dining might pay a base amount. At the end of the day, the tip out method is meant to ensure fair compensation for the service staff while the restaurant owners make their profit.

The tip out methods available involve the use of a tip line on the credit card receipt. It’s important to note that this company option has become more popular in the last 10-15 years, but it’s not the only way to tip out in a restaurant. Continue reading to determine what’s best for you.

Percentage Tip Out

With a percentage tip out method, a predetermined tip percentage is added to the bill and divided among the staff based on the number of people working. This method is best suited for a fine dining restaurant. You have total control over how much each staff member gets.

There’s usually no minimum tip percentage and no minimum total bill base. The people responsible for taking the credit card payments are usually responsible for dividing the tip amount among the staff members.

Tip Out Methods

A tip out method or tip out arrangement refers to the arrangement of people sitting at the restaurant tables. How guests are seated at the tables is usually a good indicator of how the servers will be divided up depending on what methods are used. The server is then classified according to the type of service they provide to the guest, so the server can be flipped or assigned or assigned with the reservation number, and the server has been divided according to the table numbers.

The most common tip out variation uses a cast system, where each server is divided into one of four categories, usually labeled service (S), kitchen assistance (K), bartenders (B) or floor staff (F), depending on who served the guest during their meal.

In practice, this is very different from the wage tip out method in that with this method there is an additional tip-out, which is the difference between the wage rate a server receives and the hourly or shift rate he actually receives.

The best way to explain this is to show you the picture that the restaurant staff uses to show you the divided line. There is one line that is divided or split into four different categories. The categories are service, kitchen assistance, bartenders and floor support.

The obvious difference of this tip out method is that there is no amount written on the paper.

Tip Out Costs

If you’re in the restaurant business, you have to ensure that your waiters receive a good tip. If you don’t ensure that they receipt a tip, you’ll be stuck with the tip out.

Tip out costs are the charges that non-tipping customers have to shell out because they don’t want to leave a tip for your staff. Basically, they pay for doing nothing.

There could be things that the patron did not do while dining with your restaurant, and your server still had to go by way of placing an order, waiting for the item to be prepared, and bringing the item over.

In some restaurants, you’ll see a tip envelope or place your tip on the table. However, as restaurant tips have become a thing of the past, you can expect that the tip is automatically included in their bill.

Tip out costs and tips have to be included in your restaurant business expenses, and sometimes that costs of your business can be just as high as the tips. Restaurant tip outs can include such things like food costs, wages, service charges, and liquor costs.

Restaurant patrons have the option to tip based on the quality of the service that they receive. The average tip can range from 15 to 20 percent of the total bill.

Pros & Cons of Tip Outs

I. Tip-outs

When tipping at your table, the practice is to leave 15 percent for the waitresses, bartenders and hosts and 10 percent for the bus-boys, bussers, runners and dish-washers. Essentially, the money left at the table is for the "back of the house" employees or the service staff.

According to hospitality and tourism management expert Robert Hershon, this system of tipping cannot be improved upon. He says that tipping tip-outs can become problematic. Therefore, some experts have developed the idea of a "tip-in," a system where servers would be paid a regular salary and the event personnel would receive a tip on the salary owed. It may be more accurate to say that the "tip-out" system is to tip all wait staff at every restaurant as a group, and leave the money on the table.

Theoretically, this is a more accurate measure of service because the server will always get a check from every restaurant patron. As a customer, you should be able to associate the money at the table to the performance of the server. That means, for example, it is easier to leave a tip at a table you do not dine at frequently, and you can benefit from the cheap restaurant deals more.

Ii. Tips to Management

Pros of the Tip Out

Tipping has always been a very popular thing to do whether you like it or not, and people have come up with many ways to tip, depending on the type of service you’ve received. The most popular way to tip, and the most obvious one, is to leave your dollar bill on your booth table.

Cons of the Tip out

The tip out system is one of the most common tipping methods used in the restaurant industry today. This little known method is found in most chain restaurants. This can become a problem when your bill happens to differ from the amount it should.

If you’re paying with a credit card, you can catch the discrepancy just by swiping your card and the amount you entered on the tip pad is different than what you see on the menu. The service charge also doesn’t factor into the credit card bill, so the server will only receive their normal salary check after hours, and not the service charge.

With the tip out system, there’s no more calculation on the tip out that goes into the server’s bank account. Even if it’s calculated incorrectly, since the tip goes into the owner’s bank account, the server is out of luck.

Many servers find this method unfair, for both the customer and for the employee. While the customer is likely to think that the tip is included in the bill, the server is the one who’s mistreated.

Tip Out Frequently Asked Questions (FAQs)

Because there’s such a big gap between what employees are legally entitled to earn and what they receive in tips, an ‘error’ in the complex system of tipping can result in a break of even hundreds of dollars in one night. This is why it’s imperative to know what a tip out is and how to avoid it.

A tip out is when a customer decides not to tip their server, revenue manager, and other staff members who worked on their check as well. They also may decide not to tip the bus conductors who brought their food and drink to their table. While that’s not a pretty thought, it’s bound to happen every now and then. But hopefully, it’s not one of the more popular ones.

While the reasons vary, tip outs can be traced back to the confusion created by the National Labor Relations Board (NLRB).

The NLRB issued a ruling in 2009 that stated that employees must be allowed to vote on whether tip out policies should be implemented. There are some city and state governments that have been trying to pass tip out legislation to avoid the confusion and hopefully create stronger tip outs policies. To witness the massive impact of those changes, it’s fascinating what has happened to fine dining establishments around the country.

Can tip out include the kitchen staff?

It is often assumed that "tip out" means go the waiter or waitress, but it also means the entire staff (tipping each member of the establishment). The tip is split between the entire staff including:

  • Waiters and waitresses
  • Bartenders
  • Maitre d's
  • Hostesses
  • Housekeeping
  • Busboys/busgirls
  • Dishwashers
  • Cooks
  • Bakers
  • Keg and bottle washers
  • Servers

Also, it’s a good idea to know what to tip out (because of your tip to the wait staff). In my experience, even though they collect a split of the tip, they should still tip out:

  • Bussers
  • Kitchen staff
  • Bar staff/host staff
  • Hostesses

So always tip the person, not just the server.

Can managers enforce tip out percentages?

Many restaurants are now having tipping policies. At some restaurants, the server’s portion of the gratuity is automatically added by the host or the dietary manager. The tip out policy reduces the portion of the gratuity that goes to the server. This may negatively affect the server’s income.

You may be surprised to learn that the tip out policy can be legally enforced or stated by the restaurant owner. If your tip out policy is enforced, you’re not able to give the entire tip to the server. The amount going to the server is based off of the total amount of the food and beverages that were ordered.

Many restaurants now use a form of tipping called the “Open Table” method. This method is used if the server doesn’t leave a record of the amount in the receipt or the receipt is voided.

Under the “Open Table Method,” the tip is divided equally into two parts. One part is divided among the waiter (or waitress) and the cook and the other part is divided among the other hourly employees. The tip out is based on a percentage of the total bill.

Can restaurant owners recoup credit card processing fees for credit card tips?

In some cases, a restaurant owner may have to make up the credit card processing fee to justify the cost to purchase and run the system. This does not make up the entire cost of running a credit card system in the restaurant however, and tipping employees is optional. If the restaurant owner does not tip an employee, the restaurant will still have bill total to include in the pre-tax amount, based on the amount the restaurant owner expects to collect.

Restaurant tipping is often one of the many ways owners attempt to increase the amount of money their employees earn. Some of the ways they do this include through earned meals, a bonus structure, and taking credit card tips as part of the server’s salary.

Because of the nature of the industry, grocery stores, drug stores, convenience stores and restaurants often accept credit cards. The norm has become that if a customer offers to pay with a credit card, they will be charged a credit card processing fee. The credit card processing fee will often sometimes be a flat fee and sometimes a percentage of the total transaction.

Do restaurant owners pay payroll taxes on tips?

Usually, no. However, a few states have recently passed wait service and bartending minimum wages, which effectively means that some employers will pay payroll taxes on tips. Check out our post here on how to calculate the correct gratuity on a bill.

While mandatory tipping does not exist in any state, many employers will pay their staff minimum wage, although many waiters and bartenders receive at least some of their income from tips.

Regardless of whether your employer pays your minimum wage or your tips, it’s a good practice to tip your server at least 15% to 20% of what you order so that you’re rewarded for your service and don’t return to the restaurant before the server gets their proper share.

In addition to tipping your bartender and server, it’s best etiquette to tip the bus person, host, hostess, and other service staff for any items they bring to your table. For example, if the busperson brings you your own bottle of soda and waiter brings your appetizer, it’s a good idea tip the busperson and waiter for their extra service.

How quickly must a restaurant owner distribute tips?

Whether or not a tip is left for the server depends on the type of restaurant, the size of the tip and the restaurant’s policy. At the end of a meal at a fast-food or casual restaurant, a server might not expect to see a tip. At a finer dining establishment, tip percentages often differ based on the type of establishment.

The way a restaurant distributes its tips varies from place to place. Even within one chain, tips can be distributed based on the number of years since you started working there. The longer you work in a restaurant, the more likely you are to get a larger percentage of your tip.

Some percentage tips are left on the table while others are calculated and shown on a percentage bill. The restaurant’s owner has the final say on how and whether tips are distributed.

If you visit a multi-location chain, such as IHOP, and don’t want to leave a tip, make sure you let the manager know. If you want to leave a tip but don’t want to break the bank, it’s easier than ever to add a tip to your credit card purchase.

Bottom Line – What is Tip Out?

Tip Out / Tip Over is the act of tipping a customer’s drink. You can tip out a customer’s drink in your restaurant or bar if the customer has consumed at least half of the drink and usually as a means of thanking the customer.

A tip out in the dining room is a little different since diners may have just taken a few sips or sips and then left the drink alone. Usually the diner asking for a tip out is another customer and the server will take the drink with them to the kitchen.

If you’re a bakery owner who has to tip out the bread dough when you’re making it, you might be surprised to learn that there’s a definition for this term as well. You can also use the term –tip over” when you are offering a free sample of dough to customers for them to try (similar to what a baker might do).

Tip Out – Definition 2041 – If A Customer Who Is Not A Bartender Takes At Least Half Of A Drink And Consumes It.

Tip Out / Tip Over – Definition 2022 – If A Customer Has Not Yet Taken Half Of A Drink And That Customer Then Takes At Least Half Of The Drink.