11.18.14 |
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Paying Tips Earned by Employees is a Growing Challenge for Many Restaurants

TipsRestaurants often experience a few challenges when it comes to paying employee tips. One of the primary challenges is having enough cash throughout the day to pay out those tips at the end of a shift.  With more than 81 percent of total restaurant sales paid by credit or debit card,[1]  many restaurants must find alternative ways to allocate enough cash reserves to pay tips at the end of each shift throughout the day – or wait to pay their staff until the next pay cycle.  However, most servers, especially among the younger generation, generally prefer to receive their tip income daily, as it could make up much of their income, considering their hourly wages are typically the minimum wage or lower in some states. On the other hand, some servers prefer to accumulate their tip income through their standard weekly or biweekly pay cycles so that the appropriate tax and health benefit deductions are taken out, therefore helping to avoid the need to pay a large amount of taxes at once at the end of year.

Another challenge many restaurants face today is related to having a tip settlement process that best fits their employees’ preferences. At the end of each shift, restaurants typically go through a series of steps to ensure tips earned are either paid out in cash to each server or added to each server’s next paycheck. Based on recent client surveys, some restaurants that receive tips in cash pay out the corresponding tips in cash to their employees. Credit card tips are sometimes paid out as part of employees’ wages or paid out in cash in some restaurants. Before total tip amounts are settled, some restaurants follow various processes to ensure tips are either split evenly among the servers for a given shift, or servers share discretionary tips with the hosts, bartenders and other staff members who help create the overall customer dining experience. Given the various levels of complexity, the end-of-shift tip settlement process can be challenging.

More than $28 billion is paid out annually in restaurant tips in the U.S.[2]; therefore, these challenges, as well as the need to establish best practices for the end-of-shift tip settlement process, will likely continue. In order to attract and retain the best servers in the industry, many restaurants are looking for a variety of tip payment options so they can accommodate their servers’ preferences. Restaurateurs may consider a comprehensive electronic pay solution that can help them standardize and streamline the end-of-shift tip settlement process through a variety of payment options, such as paycards.

ADP can help employers reduce complexity of paying employees. ADP recently launched a patent pending automated funding solution that can help restaurateurs standardize their tip disbursement process.


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