UnderCover Waitress: The Great Tip Debate

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Friday, August 24, 2012

The Great Tip Debate

Received this comment recently on Tip Pools at Cafe Gratitude:

"What about this?....
I'm a Small Business Owner that Ran a Small Cafe with just my Business Partner for a year and a half. We had many customers suggest that we put some sort of tip jar out, so they can tip us for our friendly services and awesome food/drinks. We're both ex-salesman and know the power of over the top service.I recently bought out my business partner and hired a couple of employees to help me out at the Cafe. We all participate in the making of food, drinks and maintaining the Cafe. There is no set role for each employee. Being that I'm the Sole Propietor now and that have a couple of employees. What is the fair/legal way for me to allocate these tips. I should mention that I personally work 60-80 hours a week and these employees work anywhere from 8-35 hours a week. Plus there are many hours throughout the day were I don't have employees assisting me. I run the place by myself. What do you think? I've read all the "Tip Pooling" Laws for Restaurants, but it just doesn't seem relevant to my scenario. I'm very generous with the tips and love to help make money for my people. I know for a fact that the majority of the tips are intended for me personally, based on my relationship with the customers and my dedication to their friendly service. I just want to be fair to my employees."

First, I thank the person for writing. Respectfully, I have concerns or disagreements with a number of opinions expressed above, and would like to go through and respond.

Whether or not an owner or manager may legally participate in tip pooling depends upon state laws. California is an example of a state in which managers may not take tips. Vermont is an example of a state in which managers and even owners may dip their hand into the pool. That doesn't mean they all choose to; it means it is not illegal. I heard a restaurant owner in Vermont who would help on the floor of her little restaurant say, "I will never take my employees' tips. Never have, never will." Kudos to her!

Well, here goes:

I'm a Small Business Owner that Ran a Small Cafe with just my Business Partner for a year and a half. We had many customers suggest that we put some sort of tip jar out, so they can tip us for our friendly services and awesome food/drinks. 

It is inappropriate for owners to put out a tip jar. The rationale is that owners have the power to set prices and set their take, or salary. There is an ice cream shop we frequent that is owned by a married couple. When they are the only ones working, there is no tip jar. When an employee is behind the counter, there is a tip jar on the counter. That is appropriate tip jar policy.

Growing up, I was taught to tip the lady who cut my hair. When this successful hairdresser bought her own salon, my mother instructed me to cease tipping. Because this lady was now the owner, she could set her prices and the tip was no longer necessary nor appropriate.

While your customers meant well, they were incorrect. You likely had other customers who knew that this behavior was unprofessional but chose to not say anything.

I recently bought out my business partner and hired a couple of employees to help me out at the Cafe. We all participate in the making of food, drinks and maintaining the Cafe. There is no set role for each employee. Being that I'm the Sole Propietor now and that have a couple of employees. 

Congratulations on your continued success.

EDIT to remove discussion of definition of sole proprietor. Please see comments.

With an extremely small business such as yours, it may seem to be working that there is no set role for any employee. In general, however, job descriptions are helpful and prevent problems. Personally, I think you should develop job descriptions now, before your business grows and before you start to have problems stemming from lack of communication and resentment among your staff.

When there are no job descriptions and everybody does everything, people may gravitate toward the tasks they enjoy best. Somebody may start to resent that they always get stuck doing X. Somebody is angry that they never get to do Y. Without job descriptions, people may start to invent their own rationales for why they should get to do Y: they are best at it. Job descriptions = less confusion, less negotiation and discussion, and more efficiency. Job descriptions = people know what to do and they do it. People allow others to perform their own jobs. Job descriptions create a more efficient, streamlined workplace in which people know what is expected of them, and know what they are responsible for. You may not have a problem with the individual personalities you are working with now, but down the road, everybody does everything is a recipe for disaster.

What is the fair/legal way for me to allocate these tips. I should mention that I personally work 60-80 hours a week and these employees work anywhere from 8-35 hours a week. Plus there are many hours throughout the day were I don't have employees assisting me. I run the place by myself. What do you think? 

"Fair" and "legal" are two different concepts. I don't know what state you are operating in, so I can not comment on legal.

The only fair way to allocate tips, in my opinion, is to give them to the employees who were working when the tips were given. If it is you and one employee on for two hours, those tips go the employee. He should pocket them when the second employee comes in. They split the tips that are given during the hours they work together.

You work 60-80 hours per week because you are the owner of a business. With power comes responsibility. You work longer and harder, but you set the prices, have equity in your business, get to make decisions that affect your business. Employees just get whatever you decide you can afford to pay them. Take it or leave it. They work less hours than you, but for much, much less in the long run. The least you can do is let them keep their tips.

I've read all the "Tip Pooling" Laws for Restaurants, but it just doesn't seem relevant to my scenario. I'm very generous with the tips and love to help make money for my people. I know for a fact that the majority of the tips are intended for me personally, based on my relationship with the customers and my dedication to their friendly service. I just want to be fair to my employees."

Tip pooling is exactly what you are doing in your establishment: it is one hundred percent relevant to your scenario.

You claim to be generous with tips. The tips are not yours to be generous with, you see? I can not be generous with my neighbor's money.

If you wish to make money for your people, teach them your sales and good service skills. Develop humility and realize that tips aren't all just left for you; give your employees the benefit of the doubt. If you wish to be fair to your employees, then please do so. Let them keep their tips. As the owner of the restaurant/cafe, stop taking tips. Tips are for employees, not owners.

Thank you for writing, and here's to your continued success.





6 comments :

  1. I have worked in payroll and in restaurants for several years. Sole proprietors can have employees, but they can not actively be on the payroll. With that being said, they should not take or claim tips as income. They should be taking a draw for what they need for income and then claim it all when they file their 1040 at the end of the year. Their business 941 should report any tipped income that the employees took in.

    I hope this helps!

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    Replies
    1. Hi, the definition of a sole proprietor is a business that is owned and run by one individual and in which there is no distinction between the business and the individual. That means that a sole proprietor is 100% responsible for all business debts; he or she can not set up a personal account and not have it attached by business debtors. (Make sense?)

      If you could please back up your claim with a reference that a sole proprietor may have employees, I would like to see it, thank you.

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  2. Interesting. I think the scenario is definitely one that needs to be ironed out and formalized now, and I'm in agreement with your points, Under Cover.

    ReplyDelete
  3. Here is one of the better explanations I have found.

    A sole proprietorship is an unincorporated business owned by one person (hence, the term sole). The owner of a sole proprietorship is known as a sole proprietor. If you conduct your business through a corporation, your business will not be a sole proprietorship. If you share ownership of your business with someone else, including your spouse, your business will not be a sole proprietorship.

    The most important feature of a sole proprietorship is that the law makes no distinction between you, the sole proprietor, and your business. Virtually all the legal and tax consequences associated with sole proprietorships flow from this essential element.

    As a sole proprietor, you can conduct business under your own name or under a trade name. For example, let's say I am a plumber. I can conduct business under my own name, Jim Poznak, Plumber. Or, I can conduct business under a trade name, such as EZ Flush. (Before using a trade name, you should read my article regarding trademarks, which appeared in the February, 1994, issue of Home and Small Business Reporter.) In either case--whether you conduct business under your own name or under a trade name--if you are the sole owner of an unincorporated business, your business will be a sole proprietorship, and you will be the sole proprietor.

    A sole proprietorship can hire any number of employees. Because the law makes no distinction between you, the sole proprietor, and the business, you are not considered an employee. Sole proprietorships may also hire any number of independent contractors.

    http://www.poznaklaw.com/Doing-Business-as-a-Sole-Proprietor.shtml

    ReplyDelete
    Replies
    1. Awesome! Thank you for these clarifications. So, the guy who owns the cafe may be a sole proprietor -- probably is, since he would know if he incorporated.

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