Careers

​6 Things to Know If You're Considering a Job with Earnings Based on Tips

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Performance is a key element in determining one's success and compensation in any role, and in no context is that more critical than in jobs with earnings based on tips. That said, when you depend on tips, performance can take you only so far. Many other factors can impact how much you make and what happens to what you make, so as you consider roles that allow you to earn money through tips, keep the following things in mind.


1. Know Your Base Rate

As a tipped employee, you will also make a certain base rate, the amount per hour you get before adding tips. Your base rate depends on your role, your employer and your state, so before you embark on the journey of becoming a tipped employee, consider your preferences and conduct research to explore your options.

Most tipped employees work in the food and beverage industry (waitstaff, bartenders, food delivery) as well as the hospitality industry (hotel cleaners, room service, bellhops). Other roles with earnings in tips include drivers (cabs, shared rides), casino dealers, and hairdressers/barbers. As you review the choices, consider both your job preferences and the potential base rate. Even if tips make up the larger portion of your income, you probably won't mind making more per hour if that's an option.

When I worked as a waitress in college, I earned $2.13 per hour prior to tips, which still happens to be the minimum hourly cash wage required under the federal Fair Labor Standards Act for employees who receive $30 or more in tips each month. Though some states require employers to pay tipped employees the full state minimum wage or a higher minimum cash wage than the one required under federal law, most tipped employees rely on a combination of wages and tips for a more robust weekly or monthly compensation.

2. Choose Your Venue/Employers Strategically

As a tipped employee, where you work matters. Not all tip-based roles are created equal and though some of the differences come from state laws or your exact position (for example, the minimum hourly wage for bartenders is usually higher than the one for waiters), your earning potential often depends on other factors, including venue, location and customer characteristics. At the small restaurant where I worked as a graduate student, many customers were regulars and tipped higher than the one-time customers who ate there.

At brand-name, high-end restaurants, hotels or casinos, tipped employees could make quite a comfortable paycheck, but these aren't available to everyone. As you consider becoming a tipped employee, scope out your options. Venues with higher prices may result in higher tips, especially if tips are determined as a percentage of bills. Venues located in popular locations or in busy areas may see more customers, which could translate into more tips. For cab or shared ride drivers, while punctuality and driving skills matter, research has found that factors unrelated to performance and ability, such as ZIP codes, time of day, geographical location, gender and race determine how much a driver makes in tips.

3. Build Your Customer Service Skills

I hope it's no surprise that if your earnings depend on tips, you are probably in a role that requires you to interact with customers, and as such, your customer service skills can help determine how much you actually make. Though personality is critical, that doesn't simply mean that you should start smiling nonstop for the tips to start rolling in. Being genuine and personable, remembering your customers' names and using those names, anticipating or remembering their needs, and developing trust all can help you earn a higher tip. If people like and trust you, they are more likely to tip you higher, regardless of how much their final bill is.

The goal ultimately is to attune yourself to your customers' preferences and styles so that you can deliver the service they'd appreciate, not the service you think they'd appreciate. Though this is easier to achieve with regulars, having the ability to read people's preferences can help you make every customer feel like a regular. Pay attention -- each customer will show you what they prefer. Some people will tip you for being chatty and engaging them in a conversation, and others will tip you for leaving them alone. Get good at figuring out who's who.

4. Understand Your Limits

Customer service jobs are challenging for many reasons, and when your earnings depend on tips coming from customers, you want to be intentional as to where you get started. When I considered waitressing to supplement my income as a student employee, a friend advised me to start with a smaller restaurant since I had no prior experience. To this day, I'm so glad that's exactly what I did. Initially, rush hours felt overwhelming, and I was grateful to only have a few tables and the support of my co-workers. Starting at a smaller location is a good way to gain experience and expertise before moving to a larger establishment where you can make more money. As with any other career path, be intentional and strategic to position yourself for success.

5. Get Familiar with Tip Pooling

The practice of tip pooling is common in the food and beverage industry, and employers argue that it's a way to ensure each tipped employee receives a fair wage. With tip pooling, tips are added into the same pot and divided among eligible employees at the end of a shift according to a predetermined arrangement. Though the practice can be controversial, in my case, it worked.

When I was a server, tip pooling allowed all employees involved in the managing of tables (waitstaff and bussers) to be rewarded, especially during rush times. Considering the small size of the restaurant (a total of 15 four-seat tables), we all worked together to ensure exceptional customer service, even though each server had assigned tables. All staff committed to making customers feel welcome and appreciated, and regardless of what table you got (with good tippers or bad tippers), at the end of the day, we were equally rewarded for doing the work together.

6. Claim Your Tips

Tips are part of your income, and as such, you need to claim them for tax purposes. According to the Internal Revenue Service (IRS), "employees who receive $20 or more in tips in any month must report their tips for that month to their employer." To avoid getting into trouble, you want to develop a habit and a strategy to claim your tips. You especially want to do that if you are considering a tipped role as a long-term opportunity. Feel free to use this tool provided by the IRS to determine if your tip income is taxable.

Lastly, remember that tipped positions require the same approach as any other roles. As a job seeker, you want to clarify your vision of both short-term and long-term goals and research potential employers to determine what would work best for you. Ultimately, it's your responsibility to educate yourself on what it means to be a tipped employee so that you can ensure a more meaningful and valuable work experience.