06.18.15 |
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Employers: Paying Tips with an Electronic Payment Solution

TIP JarBased on a recent focus group survey facilitated by ADP with several major restaurant chains participating, 88 percent of restaurant employees receive tips in cash at the end of their shifts. In addition, support staff employees, such as bartenders and hosts, often receive tips from servers in cash through a standard percentage share or based on the servers’ discretion. Although cash is preferred by some employees, it can lead to the under-reporting of tips. There are also several challenges associated with employees’ carrying large amounts of cash in their pockets following shifts.

First, it can pose a safety issue for employees.[1] To help reduce or avoid occurrences of robbery, some employers encourage servers to walk out with a buddy after their shift ends. In addition to safety issues, carrying large amounts of cash may not be the strongest path to savings.  With cash on hand, some employees are spending as soon as they are earning, therefore limiting their ability to save for the future. In another recent client survey, employees who were paid electronically showed that their savings balance increased over time, which can help boost employee morale and retention rates.

Another potential downside of receiving cash tips is the inconvenience of making frequent trips to the bank. Often times, employees will wait to accumulate their cash tips for one to two weeks before depositing their funds into their bank account.

A third potential disadvantage particularly for long-time servers is that they may miss out on important employer benefits, such as retirement or flexible spending accounts, since their wages typically cannot cover these expenses at the time of payroll. Often times, employees’ wages only cover federal and state taxes deductions if tips aren’t included, which automatically exclude them from other employer-sponsored benefits.

The option of receiving tips electronically can help employees save time (less frequent trips to the bank), money and feel safer leaving their job sites at the end of shifts.[2]  To view a testimonial from an ADP service industry client that rolled out an electronic payment solution for tips, click here.

Learn More About ADP SmartCompliance® Wage Payments


The information provided in this blog post is for informational purposes only and not for the purpose of providing accounting, legal, or tax advice.  The information and services ADP provides should not be deemed a substitute for the advice of any such professional.  Such information is by nature subject to revision and may not be the most current information available.

[1] http://www.foodservicewarehouse.com/education/restaurant-management-and-operations/what-to-do-if-your-restaurant-is-robbed/c28012.aspx

[2] http://www.mypaysolutions.com/blogs/2014/08/surprising-benefits-of-pay-cards


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