The Different Types of Tip Distribution Models for Businesses - youtip
The Different Types of Tip Distribution Models for Businesses

The Different Types of Tip Distribution Models for Businesses

In today’s world, most businesses, especially those in the service industries, are increasingly embracing tipping in a show of gratitude to their employees who are now working in the face of Covid-19 risks. 

Unfortunately, tip distribution has always been challenging to many businesses. It is irrefutable that all employees contribute to the business operations and, most importantly, in customers’ satisfaction. So, as a result, even distribution of the tip money to the entire workforce can prove to be a daunting task. 

But as a smart business owner, you need to understand the different types of tip distribution models to allow for a smooth tip splitting process. In this article, we’re going to look at the different types of tip distribution methods, their pros and cons, and the best tip distribution for your business. Let’s dive right in! 

1. Tip pooling 

Tip pooling is a tip distribution method where all or part of the collected tip money is collectively put into one large ‘pool’ and then redistributed among the tipped employees. Tip pooling enables the rewarding of the workers for their services, and that often acts as a motivating factor. 

But on the other hand, tip pooling, if not carefully done and regulated, may cause disgruntlement between employees primarily due to unequal distribution. For instance, a high-performing employee or an employee working for longer or extra hours may be discontented if they go home with fewer tips. 

2. Tip sharing 

Most of the time, people use tip sharing interchangeably with tip pooling. But in essence, it is equally different from tip pooling. In tip sharing, also referred to as ‘tipping out,’ a certain amount usually in percentage is taken out from the tip money and redistributed among employees that are rarely tipped. In other words, the tipped employees share part of their tipped money with non-tipped employees. 

For instance, in a restaurant or hotel set up, employees interacting with guests or servers may voluntarily share money tipped for their services with other supporting staff such as cooks/kitchen staff, bussers, or even the accounting staff. Thus, tip sharing can encourage collective working among the employees and motivate them to increase their productivity. But then again, despite encouraging unity and teamwork among employees, it can be challenging for employers to determine the rate of tip distribution. 

3. Point system distribution 

This is a distribution type where the employer assigns points to every employee; then, tips are distributed in accordance with the points. These points can be assigned based on employees’ experience, duties, performance level, or merits, among other factors. And the tip money to be distributed can range from 20 percent to 100 percent of the total tip money depending on the laid agreements. 

If all the tip money is to be pulled out (100 percent), then in service environments such as restaurants and bars, servers/bartenders may get preferred when it comes to point allocation and receive higher points than others. Although the point distribution model allows for all-around tipping or distribution of the tips to the entire workforce, it can sometimes be challenging to assign the points to individual workers. 

4. Tip distribution based on the working time 

Another way to distribute the tips is based on the time employees spend working. With this, you simply track and record the hours an employee spends working in a day or a week and then distribute the tips in the ratios of the working hours. For example, janitors or cleaners may not operate for the same duration as other employees like the waiting staff or ICT technicians. 

Something good about this type of tip distribution is that it creates a sense of fair distribution in relation to an employee’s working time. But on the flip side, it may create a dilemma between full-time work and part-time work as some duties may require more working hours than others. 

5. Tip distribution based on customers served 

Here, tips get distributed in accordance with the number of customers or the tasks handled (if measurable) by an employee in a day. Or in other words, the more the number of customers/clients served or duties handled, the higher the tip amount that particular employee receives. 

For example, among a customer support service team or a call center, the splitting of tips would be done in line with the number of clients served or the number of calls handled by a specific employee in a period. So basically, if an employee serves more, they are rewarded more. 

This model can motivate and increase productivity in your workforce as workers may deliver in extras to pocket more tip money. But then again, that may trigger competition amongst employees, which may be good in terms of output but not in enhancing teamwork or building a good work culture. 

So, what is the best tip distribution? 

First and foremost, you should ensure that your business adheres to the Department of labor’s final tipping rules and regulations to avoid getting yourself on the wrong side of the law. After complying with the authorities’ regulations, you need to consider some general guidelines and tips to determine the best distribution model for your business, including:

  • The tip distribution method should be established, approved, and backed by the employees. 
  • Tips sharing may be recommended/optional and not mandatory to avoid workplace conflicts that may arise following the dissatisfaction of some employees. 
  • Finally, it would be best to commit to an open and clear tip sharing ratio irrespective of the distribution model. 
Digital tipping experience with youtip 
youtip digital tipping screen qr code

With fewer people carrying cash following Covid-19 control measures, providing a digital tipping platform, youtip, will ensure that your customers keep safe, save time, and enjoy the convenience of cashless payments. Something even better with youtip is that it can seamlessly match with any type of tip distribution model, allowing businesses to enjoy the ease of digital tipping

So as tipping grows and extends to multiple industries, offering a cashless and contactless tipping solution with youtip will go a long way in improving customer experience and meeting your employees’ expectations with increased tips. If you’re ready to go digital with tipping, you can contact us to learn how you can easily roll out youtip for your business. 

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