5 Reasons Hospitality Employers Should Consider Digital Tip Payments 

With 2020 in the books, we’re just beginning to wrap our heads around the long-term impacts of The Year We’d Like To Forget.

It was a rough time all around for hospitality. But there were some silver linings. While the pandemic amplified pain points that the restaurant industry has been struggling with for many years, it actually gave restaurateurs a reason and an opportunity to evaluate the status quo and get creative about — well, everything. 

Ultimately, many uncovered solutions that will continue to serve them well, even when shutdowns and social distancing become distant memories.

One such solution that employers have latched on to: digital tipping software. 

COVID and the Cash Dilemma

Managing cash flow — and specifically, the process of paying out cash tips — has always been a headache in hospitality. It’s tedious and time-consuming and subject to human error. 

COVID made a bad problem worse by accelerating two separate-but-related trends: a shift toward off-premise restaurant sales and a drastic increase in credit card transactions. As a result, many restaurants and bars are finding that there’s never enough cash on hand to pay out tips at the end of the shift. 

How are they handling it? Some are continuing to struggle with cash; others are considering payroll or pay card tips. But many are moving to digital tip payments. 

Digital tipping software removes the inefficiencies, liabilities and drama from the old-school tip payment methods, while still ensuring that every employee gets their tips instantly. 

Here are 5 reasons why restaurants should consider digitizing the tip payment process in 2021.

1. Cash shortage, solved 

Some of COVID’s impacts will likely be short-lived. Plexiglass dividers won’t be up forever; carry-out and delivery may slow down a bit. But we don’t foresee cash making a big comeback. Of course, it won’t go away entirely — but credit card and digital payments were on the rise well before COVID was a household name. As a result, the cash shortage that restaurants face on a daily (or nightly) basis isn’t going to resolve itself. 

2. Fewer banks runs

With little cash on hand, managers are forced to make multiple bank runs a week. That adds up to hours missed on the floor. Then there’s the time it takes to count, re-count and distribute earnings to each tipped employee. With digital tipping software, it never matters how much cash is available at the end of a shift. That means no more trips to the bank, so your managers can focus on more important tasks.

3. Reduced labor costs 

While managers are wasting time on bank runs and cash counting, employees are essentially getting paid to wait for their cash tips to be distributed. (To quantify this, pick a state. How about Colorado, where the server minimum wage is $8.98? If a Colorado restaurateur has 10 employees waiting together on the clock for 15 minutes, that’s 150 minutes of unnecessary compounded labor or $22.45/day – almost $675/month!)

Digitizing the tip payment process saves employees a lot of time, which saves employers a lot of money.

4. Enhanced recruiting and retention

Hospitality employees expect to get paid on a daily basis. In fact, for many of them, it’s the primary reason they’re in this business. 

In 2021, restaurants will continue hiring employees back. Digital tipping gives them a leg-up on other employers that tip out on payroll (where employees have to wait days or weeks for their earnings) or on paycards (which come with high fees for employees). Digital tipping also keeps restaurants competitive with gig-economy employers — think: Uber — where employees get paid instantly.

More importantly, by ensuring that employees are paid instantly, employers show that they care about their people. That can go a long way in building a foundation of trust and respect and ultimately leads to employees who are highly satisfied with their jobs.  

5. Risk mitigation

Restaurants that make bank runs or have cash delivered put themselves at a higher risk of theft and skimming. And it’s not just the employers: when employees leave the establishment late at night with large amounts of cash, they’re at risk, too. 

Aside from theft, counting, recounting and distributing cash leaves room for human error. With so little visibility, accounting and reporting can be tedious, and tip disputes with employees are all too common. 

Those issues are eliminated when the tip payment process is digitized: cash is deposited instantly and directly into employees’ bank accounts, so everyone is a little safer. And there’s complete transparency for all parties involved: employers, managers, employees, bookkeepers, and any external vendors or advisors. 

Keep in mind: not all digital tipping solutions are created equal. While pay cards are technically digital payments, they come with unexpected (and often predatory) fees for employees when they try to use them or transfer funds. Digital tipping software bypasses the pay card altogether, so that tip payments are safely and securely in employees’ bank accounts before they walk out the door at the end of their shift.

New Era, New Solutions

Hopefully, we’ll soon see the light at the end of this tunnel. But just because the pandemic is temporary doesn’t mean the pivots we’ve seen across the industry should be temporary, too. Restaurants would do well to consider which operational changes can be leveraged in the long-term, and they should continue to seek out and take advantage of the smart innovation that’s come from a less-than-desirable situation