My tip-out is a percentage of my sales, not my tips. How does that work?
The short answer
Example math
Say your house tips out 3% of sales to the bussers and bar (illustrative only). Two shifts, each with $2,000 in sales:
| Good night | Slow-tipping night | |
|---|---|---|
| Tips you collected | $400 | $200 |
| Tip-out: $2,000 Ă— 0.03 | $60 | $60 |
| Tips you keep | $340 | $140 |
| Tip-out as a share of your tips | 15% | 30% |
- For taxes, you report $340 for the good night and $140 for the slow one.
- The bussers and bar report the $60 they received each night.
- Write down each $60 and who got it.
If tips were under $60 on a $2,000 night, a 3% sales tip-out would be more than you took in.
Still being verified: whether a sales-based required tip-out that exceeds tips received raises an FLSA issue
Not tax or legal advice.
Check your estimate
Enter the tips you kept after tip-outs, not your sales and not the tips you collected.
Open the calculator
Plain English
Why the base matters
A tips-based tip-out moves with your tips. A sales-based one moves with your sales. On a night when the tables tip well, you may barely notice. When they tip poorly, the tip-out stays put and takes more of what you made. Track the tip-out as a share of your tips, not only as a share of sales, so you can see how much it really takes.
Federal wage law
Federal wage guidance doesn’t directly address tip-outs figured on sales. It doesn’t say a sales-based tip-out is allowed or banned, and it doesn’t say what happens when one is bigger than your tips. These rules still apply either way:
- Your employer can’t keep any part of your tips, directly or through a pool.
- On a tipped cash wage (below $7.25 an hour), a required tip-out can go only to workers in customarily tipped jobs. If everyone gets at least $7.25 an hour in cash wages, it can also go to cooks and dishwashers.
- On a tipped cash wage, your employer must tell you the required contribution and can take a tip credit only on the tips you keep.
There’s no federal limit on how much of your tips you can be required to share. See Is there a limit on how much of my tips I have to tip out?
Your state may have stricter rules.
For taxes
The base doesn’t change the tax rule.
- Report only the tips you receive and keep. Don’t report the tip-out you passed on.
- The coworkers who receive it report it as their tips.
- Your daily record should show what you paid out and the names of who you paid.
No “normal” percentage
No federal rule sets a standard tip-out, on sales or on tips. The 3% here is made up to show the math.
Common mistakes
- Entering sales, or tips before tip-outs, as your tip income.
- Judging a sales-based tip-out by its percentage alone. What matters is how much of your tips it takes.
- Not writing down the tip-out on slow nights, when it’s the biggest share.
- Assuming a sales-based tip-out is automatically illegal, or automatically fine. Federal guidance doesn’t settle it.
Official sources
Last verified:
Checked DOL Fact Sheet #15, the federal tip-pooling regulation (29 CFR 531.54), the 2020 federal tip rule, IRS Publication 531, and the IRS tip recordkeeping page. None of the federal wage sources addresses tip-outs figured on sales.
Still open: Whether a required sales-based tip-out that’s bigger than your tips raises a wage-law problem.