Alternative Methods For Tipping Out Staff In The Wake of Increasing Digital Transactions

QUESTION FROM: Dan in CT

“I have a restaurant in CT and our minimum wage is currently $12 going to $15 in a few years. Because the dining room is so slow I'm paying servers $12/hr and they get cashed out for tip's. I'm just wondering if adding the tips into the check is better for business. We have aloha pos. Since customers use credit cards all the time I owe my staff money for the check out yesterday alone over $1,700 cash. Must be a better system other than restocking cash every day . What’s everybody else doing? And how do you recommend tip sharing?"

HH ANSWER:

I get a lot of questions re: tip sharing and tip pooling so let’s start there:

You should check your state’s guidelines as well as the federal guidelines but in most cases, as far as I know, if you’re not taking the tip credit for your FOH, and paying the minimum wage, any tip pooling is ok according to minimum wage law. (See: https://www.dol.gov/whd/regs/compliance/whdfs15.pdf) 

If, however, your FOH are on tip credit under minimum wage law, you can't put them in a pool with your BOH (or other FOH employees) who are being paid above-minimum wage.

(NB* California may have gotten rid of tip credit: https://www.nolo.com/legal-encyclopedia/california-laws-tipped-employees.html)

So, if your servers and bussers are at min wage and are still making a lot more than BOH / hourly employees in CA (or anywhere where ownership is not taking the tip credit) you CAN pool tips to spread it around but that doesn’t necessarily mean you’ll have support from the ranks if you decide to go that route.

SAMPLE TIP OUT PERCENTAGES

DOOR - 0 / Nightly Rate

HOST - 0 / Hourly Rate

BAR - 3%

BUS - 10%

EXPO - 3-5%

KIT - 0-2% (depending on hourly pay)

Now let’s talk about cash outs and dispensing those tips:

While many believe that servers should own their tips & restaurants should price food to cover competitive BOH wages (as well as togos and new technology stacks) ,..that’s in a perfect world where every guest is paying in cash or every operator is willing and able to adjust on the fly.

There’s no denying it. Customers everywhere are paying with credit, debit and virtual payment cards (or taps) and lots of operators are trying to figure out the best way to pay out $1,000-$5,000+ each weekend for the tips left for servers on credit cards. Many simply don’t have the cash on hand to do that anymore. 

Paying out all tips in cash can threaten to not only cause strain on your cash flow, force you to keep more cash on hand than you’re comfortable with (or can afford to) or have you frequently running to the bank or ATM which, lately, can mean sitting in a drive-up/thru only service lane(s) for up to an hour or more when you’re the only one there to run the restaurant.

It’s not an easy question to answer but there are a few solutions to consider:

One popular solution is to pay out all of your server’s cash tips and add the CC tips onto their payroll check. 

Your POS may even have a setting to facilitate this method today. Look for options/setting to toggle back and forth under Tips from: paid out nightly to paid out in checks (As in Aloha).

While this allows your servers to “walk with cash” at the end of their shift (cc tips go on their check along with any tip out calculations added or deducted); it does little to address the fact that they earned the cc tips and they will likely not want to wait for them…just as you wouldn’t want to wait a week or two to settle a cc batch. So on one hand you have bar & wait staff who come to appreciate the crash course in “Saving & Budgeting” and on the other hand you have…a mass Exodus because “cash is King” and Landlord’s, grocery stores, liquor stores, utility companies and or their neighbor Vic who loaned them $20 for gas last week doesn’t want to hear about their pursuits with regard to financial literacy and fiscal responsibility.

If your waitstaff gives you a little more pushback than you’re comfortable with, try assuring them that they’ll not only get used to the idea of having more predictable income but outline the benefits of increased reportable income (e.g., credit worthiness when it comes time to buy a new car or home). 

Just be 100% transparent with the policy and process. You do not want to be backpedaling and trying to explain the fiscal nature of your business to a mob of employees who suspect you of “fucking with THEIR money”.

I’ve made some payroll tip out sheets and shared them in window boxes next to the office door for staff to view / audit and, if it’s done equitably (and with the staff’s input) you may find that you have fewer complaints than you were expecting…especially if everyone is making out well.

Believe me, I’ve heard most, if not all, of the arguments for tipping out your staff in cash:

“It’s not the restaurant’s money, It’s MY money that was GIVEN to me…NOT money given to pay for the restaurant’s goods and services.” 

"How angry would you be if you had to wait for your money!?” 

“Tip money is not yours to decide when and how it is paid it is coming from the guests and should be received that day.” 

“How do I know your math is accurate?” 

“I’m not the only one who doesn’t like this. If we don’t get our money we’re all gonna walk!”

“Just pay your people! Don’t you care enough about us to go to the bank every day for us?”

If any of these resonate with you and you think paying out cc tips in a check is wrong - then follow your conscience and do what you think is the right thing to do.

As one colleague said recently: 

“The days of keeping a big tip bag to replenish cash drawers after tip out is over.” 

The trouble is that, for many of us, sales have been cut in half (or worse) and fewer people pay with cash these days. That alone should tell you that if it’s no longer an all-cash business….it’s no longer an all-cash business. While we saw the gradual decline of cash sales - Covid only hastened that shift in the industry and believe me - servers who are accustomed to always walking with cash aren’t nearly as upset as my clients who are accustomed to walking with cash as well (granted the latter is due largely to a main artery of fraud and tax evasion being cut off by Cover…but reality is reality).

At the end of the day, if we’re not talking about hourly or salaried employees who are making minimum wage or more and we’re not talking about 20-30 employees, I’m of the opinion that you do whatever it takes to ensure your crew walks with every bit of the tips they earned that day…and if you want to deduct the credit card fee as your state allows then wait for THAT in their paycheck …even if it means you’re the only restaurant or bar in town paying out all the cc tips in cash…actually…ESPECIALLY if you’re the only place in town paying out cc tips in cash. That news will spread like wildfire and the message received loud and clear will be this: “You are doing well and you take care of your people where it matters to them most - in their pocket.” 

But that’s not always possible. In many cases, the tip money simply isn’t there physically OR electronically. While I totally agree that cash tips intended for the server or bartender should should go home with them; if the guest or customer doesn’t use cash- and opts to use an alternate payment method that isn’t instantly available (e.g., a third party cc terminal) then they shouldn’t have a realistic expectation that they should have access to money that simply isn’t there.

It’s fairly common for cc to process at the end of night or the next day and deposit the next day but I have seen it take several days for funds to deposit at some locations and although that hasn’t been the norm in my experience, I think it’s reasonable to assume that it might be someone else’s norm…and therefore wouldn’t be the employers fault - the trick is to evaluate every location based on what’s happening there and have an open candid discussion with your staff about it.

There are other options if you simply can’t get to the bank on a regular basis or can’t keep that much cash on hand for any reason. You could make sure that cash deposits from the day go back to the tip bag until it is replenished and anything above and beyond that becomes a deposit handled by truck service but …if you’re not able to increase your bank  / tip out bag to cover average weekly tip outs  your best solution may be to either A.) add it to their checks or B.) paying tips via a “cash card”.

Services like Netspend’s Tip Network offer something called T+2 funding (you may need to apply and qualify for it) where they will lend you what you pay to the cards on tips for 2 days until the credit card batch hits your account and “covers the spread”.

I have a friend who simply writes company checks to cover cash tips when they don’t have enough on hand. They’ll write a check that night some nights, five or six of them and other nights maybe 2-3. Most of her servers like it because their banks offer mobile (photo of front and back of check) deposit right from their phones. 

Visa, Venmo, Cime, Ally and some other banks (including branchless)also offer “pay cards”(See: Skylight Financial) to pay employees funds that might not be immediately on-hand. The card works as a normal debit card so employees can use the card to withdraw cash or make purchases. After 30days, an employee with one of these pay cards is able to apply for direct deposit if you offer it. 

Instant financial is another provider of a similar service: “Tip Card”. It costs $1.00 per employee per month. They employee gets a debit card and, just like Visa’s program, can use it as a debit card or use it to transfer (without fees) funds directly to their own bank. You simply load money into your Instant Financial account once a week and pay tips daily to the card (See: www.Instant.go). Your local bank or credit union may offer something similar so be sure to ask.

I just attended a meeting with Restaurant Accounting Services Inc (RASI) who offers, among their suite of 360 degree accounting / financial services: Digital Banking. With an account, cards can be made available for employees who open an account so that they can receive their pay 2 days prior to payroll - with tips included. It’s not immediate but if you’re paying your employees weekly - 2 days before their next pay isn’t very long at all. Their digital banking relationship also makes it possible for owners to put advances on the card if they’re so inclined.

Some Additional Related Information:

Due to the fact that servers and bartenders also rely on credit card fees / processing fees to get paid (just as you do) many states allow you to deduct those credit card processing fees from their tips so that you’re not paying a fee for / money on their income. In other words, they have to pay the same 2-3% for the convenience of getting paid by credit cards just as you do. 

Good Luck and let me know if I can be of any service,

Josh | UbiquityAdvisors.com