Skip The Cash: How Restaurants Are Moving To Digital Tip Disbursements
Not many people appreciate just how massive the American restaurant industry truly is.
It is the third largest employer in the US, behind public schools and local governments, employing more than 15 million people nationwide. Although the pandemic has made a significant impact on the industry, this is a sector that is still expected to generate close to a trillion dollars in sales by the end of 2020.
The industry has pivoted, adjusted and adapted to the dramatic changes wrought by the impact. It's a wonder then that some businesses still pay their employee tips in cash.
Tipping is ancient; the practice of tipping began in Tudor England, where by the 17th century, it was expected that overnight guests to private homes would provide sums of money, known as vails, to the host's servants. Soon afterwards, customers began tipping in London coffeehouses and other commercial establishments.
As restaurants shift towards contact-less payment, digital tip disbursements is emerging as a popular solution to pay employee tips at shift-end, instead of payday.
In the US, an increasing number of restaurant patrons are tipping with their credit or debit cards. This poses a particularly tough challenge for restaurants accounting-wise because employees who make up to 60% of their salaries in tips need timely access to their earnings. In some cases, we’ve seen restaurant managers go to the ATM before closing time to withdraw cash so they can pay out tips after closing.
The pandemic has particularly affected this process because almost every patron now pays with a credit card to ensure a touch-less experience. For restaurants that traditionally paid out tips in cash, running out to the bank and back with a bag of cash is a source of significant risk, both in terms of getting robbed, or in terms of handing out bills that could be contaminated.
One solution to this problem is digital tip disbursement tools. Here’s how it works:
At the end of the shift, the manager tallies up the tips and calculates how much is paid out to employees
The funds are loaded into the employee’s pay card (this can be either a virtual card or a physical card issued to employees) using a tool like Plate IQ’s Spend Management platform
The employees could use this to pay for their expenses like any other prepaid card, or transfer the funds to their bank account
The benefits of this approach are significant, for both employees and employers
For employers, the benefits are:
Not having to have significant physical cash on-premise
Being able to disburse tips easily and efficiently at the end of every shift
Easily calculating and paying out tips, down to the nickel
Easily track what is paid as wages vs tips for IRS reporting
For employees, the benefits are even better:
Instant access to tips; not having to wait for days until funds are available in their bank account
Not having to walk home with cash tips
vCards or physical cards can be used to pay for purchases and expenses, especially if employees are unbanked