5 Ways to Develop Your Restaurant's Tip Strategy, According to Experts

If you walked down Valencia Street in San Francisco and polled ten restaurants on how they managed tips, there's a good chance they would each say something different. There are 101 ways to dole out restaurant tips - from percentages to points to whether kitchen staff gets a share.

We invited four restaurateurs from diverse backgrounds to talk about their philosophies on tipping:

• Ksenia Adams - Tech Lead, Human Capital Systems @ Union Square Hospitality Group in NYC
• Gavin Kaysen - Chef/Owner @ Soigné Hospitality Group in Minneapolis, MN
• Ji Hye Kim - Chef/Owner @ Miss Kim in Ann Arbor, MI
• Kelly Phillips - Founder and Hospitality Director @ Destination Unknown Restaurants in Washington, D.C.

Tip management constantly evolves

Most of the panelists started handling tips one way and pivoted when they got new information. For some, it came in the form of staff feedback. For others, the pandemic triggered changes.

Union Square Hospitality Group, headed by Danny Meyer, famously eliminated tips in 2015. Then, a national emergency hit, and everything was turned on its head.

“As we reopened from Covid...we implemented tipping for our dining room teams. But we kept the back-of-house revenue share program for our kitchen teams, where regardless of what position you work in the kitchen, you get a certain percentage of revenue earned. Which allows for our people to earn consistent and fair wages in addition to the wide array of benefits we offer,” said Ksenia Adams.

Destination Unknown Restaurants took a different approach. In 2020, they switched full-time staff to salary instead of hourly pay. Instead of worrying about making enough tips to make a living, staff could focus on improving the guest experience.

“You have to start with the assumption that servers, bartenders, people in restaurants, they want to be good at their jobs, right? They want to be here, they don't want to give bad service. You have to hire happy people that want to be there,” said Kelly Phillips.

Staff also receive monthly bonuses for great online reviews and boosts for good press or awards. “Honestly, that's more of a point of pride for them...It matters to them. It makes them proud. They want to give good service. They want to be good at their jobs.”

Miss Kim found their tipping structure was an asset during the pandemic. They pay staff a living wage, and workers can collect tips on top of that.

“During the pandemic, the retention was actually really great. We didn't really have to deal with the great exodus of the staff leaving the industry,” said Ji Hye Kim.

The restaurant initially opened with no tipping or service charge. Everything was built into the menu price. To Ji Hye, who came from another industry, it didn't make sense that staff should rely on customers to pay their bills. She was also well aware of tipping's roots in slavery. But feedback from guests and staff showed that both were for tipping.

“I was against it philosophically, but when I talked to staff, they were all for it if it allowed them to take a few more dollars home. And I thought you know, I shouldn't be the one standing in front of people taking more money home. So we didn't switch to tip credit, but we switched to allowing tips and then having that shared across all the hourly staff,” said Ji Hye Kim. “I wanna point out, part of the challenge was that building everything into the menu price for an Asian restaurant was met with pushback that an ethnic restaurant needed to be a little cheaper. That was an added challenge because we are a Korean restaurant.”

Soigné Hospitality, however, found success without tipping. They implemented a hospitality charge, starting with one restaurant, in 2019. Since then, they've seen retention.

“We've seen happy people...And it's amazing what happens when you give people that incentive to stay happy,” said Gavin Kaysen. “The word restaurant comes from the word restoration - to be restored. And in order to really restore who we are and what we want, we have to be able to give that to others.”

5 Tips on Tipping

What did each panelist learn from their forays into different tipping methods? Here's their advice for restaurant operators looking to evaluate their tip structures.

1. Have a deep understanding of your labor costs

To decide whether you should use tip credits, service charges, or salaries, you have to know how much you can pay your staff. Kelly Phillips said, “Do the math...because that's going to be your biggest challenge now. Not how great is your food, but can you actually afford to pay people what they need to make? You need to be actively managing your labor.”

Of course, if your business is in its infancy, it might take some time to grasp that. It took Ji Hye Kim a few years to figure out what would work best for them. “Restaurants are for-profit businesses. We're not non-profit, we're not activists. Even though we can be in our everyday policies,” she explained. “So my advice would be to figure out what your state allows, and then do a P&L [profit and loss statement] and look at the long term. Because if I looked at a first-year or second-year P&L, I don't think I would've jumped in and tried to go against the flow and take on all the financial burden. It's only when we did a three-year plan and looked at what else is not contributing to the bottom line that we decided to focus on marketing and top-line sales people.”

2. Keep communication flowing

You know what you can afford. But what do staff want? Ksenia Adams said keeping communication open is vital. “Once you make that decision to make a change, be transparent at every step. Make sure people understand what exactly you're doing, and why you're doing that. How are they gonna win in this situation?”

For staff to feel comfortable giving feedback, there needs to be trust established on the team. How do you get there?

• At Soigné Hospitality, the leaders aren't afraid to show vulnerability and admit when they don't know the answers.
• Similarly, at Miss Kim, they try to create a safe environment where people aren't afraid to fail. They practice open-book finance where anyone can review the numbers (aside from individual pay). They also hold regular meetings, like after every shift or every week.
• Destination Unknown Restaurants finds that since full-staff have a guaranteed income, they're less hesitant to give feedback.
• At USHG, they use 7shifts' shift feedback tool.

“It really has to do with how much you care to address the things that you know are challenging. And a big part of that is listening to your staff and getting that feedback. It also gives you better predictability around your business...At the core level, do you care enough to understand? How do you understand? And then what do you do with that information to make it a reality?”said Jordan Boesch, 7shifts' CEO and Founder.

Once you have their feedback, use it. When Miss Kim decided to implement a tip pool, they had staff discuss it without the owner present, so they could speak more freely. It was important to staff to understand their payout and how tips were divided, so they kept it straightforward with a simple tip calculation.

3. Know your state's laws

As much as you might want to, there are certain things you can't do under state tip laws. “You have to really understand your state's law...I can do what I can do because I'm in Michigan. I wouldn't be able to do it in New York because they don't allow sharing across the department,” said Ji Hye Kim. “We considered putting everybody on salary, but the state of Michigan also has regulations on who can be salaried at a restaurant and who cannot be.”

New York, Minnesota, and Washington, D.C. are among the states and districts that don't allow tips to be shared with the back of house. There are also some states who don't allow restaurants to use tip credits, and states that have a different tipped minimum wage from the federal one. To be safe, Gavin Kaysen recommends getting help from a good advisor and labor attorney. “You're not the expert. They are,” he explained.

Recommended Reading: State-By-State Guide to Tip Pooling Laws

4. Take care of your BOH

Even if the back of house can't participate in the tip pool, you should still offer them incentives. USHG does this in the form of a revenue share program where kitchen staff get a percent of revenue earned. Destination Unknown Restaurants makes an effort to pay the BOH as much as they can, and they're in the process of figuring out how to get the entirety of their team on salary.

Since Michigan allows tip sharing (excluding salaried managers), Miss Kim starts both FOH and BOH staff at the same wage. They have the same base pay and rate of tip share to keep it equitable and easy to understand.

5. Use tools to save stress

Figuring out how to balance your business health with staff needs won't happen overnight. Discovering the right tip out strategy for your team will come down to trial and error. It took some of these operators years to get to where they are today with their management strategies. When you consider all that goes into managing a team of people, let alone a restaurant, it adds up.

“Don't be afraid of technology. There's a lot of tools out there that allow you to be successful and help you manage numbers, help you manage overtime,” said Gavin Kaysen.

The way Gavin sees it, this feeds into a larger issue of how hospitality establishments are viewed compared to other businesses.

“The fact that we call it an industry - we need to be calling it a profession. And in order to embrace a profession, we would have to embrace all that entitles them. That's technology, human interaction, equity of pay, all of the things that any profession would take into consideration.”

Keep your staff happy

Ultimately, the way a restaurant handles tips will contribute directly to retention. High trust, open communication, and frequent feedback equal good culture. Good culture and good pay mean staff will stick around. If you're not sure where to start, wade into the waters with our tip pooling resources.

Take it from Gavin Kaysen: “We are a for-profit business...I think when people hear that term, they hear it as a selfish term. But it's also making sure that everybody that works for us can make the payment that they need to live the life that they choose. And that's the responsibility that we have.”

The Panelists

Ksenia Adams (she/her)

Tech Lead, Human Capital Systems @ Union Square Hospitality Group in NYC.

Ksenia oversees HR Systems and serves as a liaison among the USHG Tech team, vendor/solution providers, and Human Resources. Previously, Ksenia served as an HR Business Partner and was responsible for aligning business objectives with employees and management at designated USHG business units, such as Daily Provisions, Maialino, Gramercy Tavern, and more.

Gavin Kaysen (he/him)

Chef/Owner @ Soigné Hospitality Group in Minneapolis, MN.

A Minneapolis native and a two-time James Beard Award-winning chef known for his nationally renowned restaurants and cafés in the Twin Cities as well as his leadership in the culinary profession. Chef Kaysen's vision to create a more professional work environment for hospitalitarians has inspired activism in the local community and change on a national level. He recently published and sold out his first cookbook, "At Home".

Ji Hye Kim (she/her)

Chef/Owner @ Miss Kim in Ann Arbor, MI.

Named one of Food & Wine's Best New Chefs of 2021 and a James Beard Award Best Chef semifinalist, Ji Hye aims to broaden the understanding of Korean cuisine through her cooking. At her acclaimed restaurant Miss Kim — named one of Ann Arbor's “Most Essential Restaurants” by Eater — her seasonal menu is inspired by ancient Korean culinary traditions, and adapted with local Midwestern ingredients.

Kelly Phillips (she/her)

Founder and Hospitality Director @ Destination Unknown Restaurants in Washington, DC.

Destino, Las Gemelas, and Ghostburger. Kelly was named as one of Washington Business Journal's 40 under 40 in 2022 for her work in fostering equitable work environments in the restaurant industry.

Watch the full roundtable below: