Money
Tip-outs explained
The second-biggest number on your shift, and the one almost nobody records properly. Here is how the money leaves your hand.
Last updated 31 August 2026 · Written by the Tipfolio team
In short
- ✓Three shapes: percent of tips, percent of sales, flat. Which one you are on matters more than the percentage.
- ✓Percent-of-sales shifts the risk of a badly tipping table onto you.
- ✓Record gross tips and tip-out separately — the net alone is a receipt, not a record.
- ✓Tips you pass on under a genuine arrangement are generally the recipient's income, but only if you can show it.
- ✓Federal rules restrict employers, managers and supervisors from keeping employees' tips. Suspected breaches need a lawyer, not an app.
Tip-out is the least examined number in tipped work. Most people know their percentage, few know what it costs them across a year, and almost nobody can produce the figures if asked. That is a shame, because it is usually the second-largest number on the shift after the tips themselves.
The three shapes
Almost every arrangement is one of three, and which one you are on matters more than the headline percentage.
| Basis | How it works | Who carries a bad night |
|---|---|---|
| Percent of tips | A share of what you actually made. The most common arrangement. | Shared. If you make less, you owe less. |
| Percent of sales | A share of your total sales, regardless of what you were tipped. | You. A stiffed $400 table still generates tip-out. |
| Flat amount | The same figure every shift. | You on slow nights; support staff on busy ones. |
Why percent-of-sales is the one to watch
Work a $1,600 sales night on a 4% sales-based tip-out and you owe $64 — whether you were tipped $340 or $150. On a 20%-of-tips basis those same nights would have cost you $68 and $30.
Over one shift, unremarkable. Over a year of shifts, including the slow Tuesdays and the big-party-that-didn't-tip nights, the difference is real money. And you can only ever see it if you logged sales, tips and tip-out separately. Run both bases through the calculator →
Pools and shares are not the same thing
- Tip-out — you keep your tips and pass a defined share to specified roles.
- Tip pool — tips go into a common pot and are redistributed by an agreed formula, often weighted by role and hours.
- Tip share — used loosely for either; ask which one your house actually means.
The distinction matters for your records. In a pool, what you "made" and what you "took home" can diverge substantially, and if your log only captures the amount that reached your pocket you have lost the ability to show what passed through your hands.
Who can be in the pool is the part with real legal weight. Federal rules restrict employers, managers and supervisors from keeping employees' tips, including through participation in a pool, and states layer their own rules on top. If you suspect the pool includes people it should not, that is a question for your state labour department or an employment attorney — and a contemporaneous record of what you paid in is exactly the evidence such a question needs.
Record gross and tip-out, never just the net
The single most common record-keeping mistake in tipped work is writing down only what you walked out with. That number is fine for budgeting and useless for everything else:
- You cannot reconcile it against your W-2, which reflects gross tips rather than net.
- You cannot show which portion was passed to other workers — the thing that determines whose income it is.
- You cannot show a lender your actual gross earnings.
- You cannot tell whether your arrangement is quietly expensive.
Two numbers, every night. It costs about three extra seconds and it is the difference between a record and a receipt.
Sanity checks worth running
- Does the rule ever exceed your tips? On a genuinely bad night a sales-based or flat tip-out can approach or exceed what you made. If that happens regularly, the arrangement deserves a conversation.
- Is the policy written down? A percentage that lives only in a manager's head has a way of drifting upward.
- Do the recipients match the policy? Roles quietly get added to tip-outs.
- What does it total over a year? Most people have never added it up. It is usually a larger number than they expect.
Questions
What is a tip-out?
A tip-out is money you pass to other workers who supported your shift — bar, bussers, food runners, hosts. It is usually set by house policy as a percentage of your tips, a percentage of your sales, or a flat amount per shift.
What is a normal tip-out percentage?
On a percent-of-tips basis, totals across all recipients commonly land somewhere between 15% and 30% of your tips. On a percent-of-sales basis the number looks much smaller — often 1% to 5% — because it is taken against total sales rather than against tips. Your house's written policy is what actually governs you.
Can my manager take a share of the tip pool?
Rules on this are strict and heavily litigated. Federal law generally prohibits employers, managers and supervisors from keeping employees' tips, including by participating in a tip pool, though the details of who counts as a supervisor and which arrangements are permitted are genuinely complicated. If you think your employer is taking a cut, that is worth advice from a labour attorney or your state labour department, not from an app.
Do I pay tax on tips I tip out?
Generally, tips passed to other employees under a genuine sharing arrangement are their income rather than yours. But you can only demonstrate that if you recorded gross tips and tip-out as separate figures — which is the practical reason to log both.
Is percent-of-sales tip-out legal?
Sales-based tip-out arrangements are common and are widely used, but they interact with wage-and-hour rules in ways that vary by state and by the specifics of the arrangement. The economics are the part you can act on yourself: a sales-based tip-out shifts the risk of a badly tipping table onto you.
Set the rule once. Never do the maths again.
Tipfolio applies your job's tip-out rule to every shift, keeps it editable before you save, and stores it alongside your gross so both numbers survive.
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