Why Restaurants Are Moving Away from Paying Card Tips in Cash

According to the National Restaurant Association, at the end of 2020 there were more than 12.5 million Americans working in the restaurant industry — down more than three million of what was expected. The reason for the precipitous drop: the COVID-19 pandemic, which hit the restaurant business the hardest.

During 2020, the number of restaurants that temporarily or permanently closed numbered 110,000, and those that remained open in some capacity experienced major changes, including how customers paid and even tipped. Many restaurants and food-service industry businesses began accepting only credit/debit cards to reduce the constant touching of paper money and help mitigate the risk of spreading COVID-19. 

However, that left business owners with a challenge: disbursing employee credit/debit card tips.

Whether you're having to coordinate and disburse tips each day or dealing with cash shortages when most transactions are completed with credit/debit cards, there are strategies that establishments can use to streamline the process. Here's a look at why some restaurant managers — and anyone collecting tips for employees — may want to consider moving away from paying credit/debit card tips out in cash.

Reduce the Administrative Burdens

Increasingly, tipping customers are conducting transactions on credit cards or debit cards. As a result, managers must square the books and ensure that tips are paid out to the correct employees in the right amounts. This process adds a layer of complexity to accounting, tracking payroll for taxes, and other financial tasks.

Reduce Human Error

Another risk factor that managers need to consider is simple human error. Often, managers are balancing the books each day at the end of a long shift. Determining tip amounts, which tips went to a specific server, and other details can be challenging, even when it's partially managed through software. A table that's incorrectly allocated to one server, or a situation where a server helps cover for a colleague who needs to leave can completely derail the process. There's also an increased risk of errors being made during the payouts, as cash payments can be harder to track and record than digital payments.

Reduce Cash Shortages

When the vast majority of your patrons pay their bill with a credit card or debit card, this can create unexpected challenges for business owners. As many transactions today are conducted digitally, business owners may not have the right cash on hand to make the necessary tip payments to their employees. This can lead to multiple trips to the bank or ATM, frustrated employees, and unnecessary extra steps in the work process.

Find a New Solution

Many business owners and managers whose companies deal in tips are embracing other solutions. One option is to use a payroll service that includes a tip option to pay out tips on a weekly basis (or at regular intervals). Compensation can be handled all at once and the payroll service can also assist with any tracking, follow up, or record keeping that's needed. Employees receive a check or direct deposit that reflects the cash payout of the credit/debit card tips received during the pay period.

Another option is to use paycards. There are systems that allow business owners to issue debit cards or payment cards to employees for the tips. Each day or each pay cycle, the credit/debit card tip amount that's owed to the employee can be transferred directly to that account. Employees are able to access their money by either paying for transactions with the card, or withdrawing cash from an ATM machine. For business owners, everything is done digitally and there's no need to have cash on hand or monitor cash transactions for errors.

Tips are an amount over the amount due for the goods sold or services rendered voluntarily given by customers to employees in certain businesses, from restaurants to other service-based establishments. As more transactions become electronic, processing non-cash tips may become more difficult for managers and business owners. As a result, many are proactively incorporating solutions that can make it much easier to pay team members their credit/debit card tips in a fast, accurate and convenient way.