The best way to manage tips in Square POS is to set up tipping once with clear defaults, decide in writing how tips are shared, use Square's tip pooling so the math happens automatically, and review tips every pay period before payroll. Automatic gratuity for large parties is a separate tool with different rules, so treat it separately.
This guide covers the operational side in Square. For how tips are taxed and reported, read what you need to know about taxes and tips.
Step 1: Turn on tipping and pick your amounts
In the Square Point of Sale app, tipping lives under Settings, Checkout, Tipping. Turn on tip collection, then choose how amounts are suggested:
- Smart tip amounts: Square shows whole-dollar options on small orders and percentages on larger ones. This works well for coffee shops, where 20 percent of a $4 drip coffee looks odd.
- Set percentage amounts: you choose three custom percentages. Better for full-service restaurants with larger checks.
Customers can still enter a custom amount. Whichever you choose, keep it consistent across devices so tips do not depend on which register someone used.
Tipping on online and kiosk orders
Decide whether you want tips on orders placed online, in your app or at a kiosk. Many counter-service shops do, since the same team makes the order. If you use online ordering, set the same tip options there so customers see a familiar choice.
Step 2: Decide how tips are shared
Before touching settings, write down your tip policy and share it with your team. Answer these questions:
- Does each person keep their own tips, or are tips pooled?
- Who is eligible: front of house only, or kitchen staff too?
- How is the pool split: equally, by hours worked, or by a set percentage per role?
- How often is it calculated, and when is it paid out?
Rules about who can share in tips vary by country and state. In the US, the federal Fair Labor Standards Act prohibits employers, including managers and supervisors, from keeping employees' tips (US Department of Labor). State laws can add more rules. Confirm your policy with an employment attorney or your payroll provider.
Step 3: Set up tip pooling in Square
If you pool tips, let Square do the math. In Square Dashboard, tip pooling is set up under Staff, Settings, Tips, then Tip allocation, where you choose Team pools tips and create a tip pool.
- Check eligibility first. Each team member's profile has a tip eligibility setting. Turn it off for anyone who should not be in the pool.
- Choose the frequency. Square can tally pooled tips per transaction, daily or weekly.
- Choose the split. Square's distribution options include splitting equally among tip-eligible staff on the clock, by hours worked, or by fixed percentages per job.
Tip pooling is included with certain paid Square plans (Square lists plans such as Square Plus, Square Premium and Square Shifts Plus), so check that your plan includes it.
Accurate timecards matter here, because shift data decides who was working when a tip came in. See our guide to tracking employee hours with Square timecards.
Step 4: Handle automatic gratuity for large parties
Restaurants that serve groups often add an automatic gratuity. In Square's restaurant POS, automatic gratuity is configured in Square Dashboard service settings and can apply to a single check, all checks, or by party size. You can set more than one rate, for example one for large groups and another for private events, and choose whether it is calculated before or after discounts. Availability can depend on your Square plan, so check your plan details.
Know the tax difference: Square notes that automatic gratuity may be treated as a taxable service charge. In the US, the IRS generally treats mandatory charges like this as service charges (wages) rather than tips. Talk to your accountant before adding one, and make sure your menu and receipts state it clearly.
Step 5: Review tips before every payroll
- Run your tip and sales reports for the pay period.
- Check for missed clock-outs or shifts that look too long or too short.
- Compare card tips with any cash tips your team declared.
- Confirm pooled amounts match what your written policy says.
- Pay out on a predictable schedule your team knows.
Example: a three-person coffee bar
A coffee bar has two baristas on the morning shift and one in the afternoon. They pool tips daily and split by hours worked. Because every barista clocks in through Square, the owner does not need a spreadsheet: the tip pool is calculated from timecards, and the weekly review takes ten minutes.
Common mistakes to avoid
- No written policy. Unwritten rules lead to arguments, and possibly legal problems.
- Different tip screens on different devices. Customers notice, and tips become inconsistent.
- Calling a service charge a tip. They are treated differently for tax and payroll.
- Skipping timecard cleanup. One missed clock-out can throw off a whole week's pool.
Where Orda fits
If you take orders in your own app, on your website or at an Orda Express kiosk, customers can add a tip at checkout using tip options you set in the Orda dashboard. Those orders and tips flow into Square POS, so they are part of the same reports you use for tip review. Learn more about mobile ordering for coffee shops.