How Restaurants Can Instantly Disburse Tips in Real-Time

According to the National Restaurant Association (NRA), in 2020 there were 15.6 million employees working in restaurants, pre-COVID-19. 

In its research, the NRA states that restaurants are the second-largest private sector employer in the United States:

  • The restaurant industry adds jobs at a stronger rate than all other industries combined.
  • By 2025, it will add a projected 1.7 million jobs.
  • More than 90% of restaurants are small businesses with fewer than 50 employees.
  • Half of all American adults have worked in the restaurant industry at some point in their lives.
  • 1 in 3 Americans had their first job in a restaurant. 

According to PayScale’s Tipping Study, tips can account for as much as 60% of a service worker’s income.Since the minimum wage for tipped workers is far below the federally set minimum wage of $7.25/hour, with most restaurant wait staff paid only $2.13/ hour, there is heavy reliance on tips to supplement their income. 

In the restaurant industry, tips are more than something you’d associate with a tip jar by the cash register — they’re a primary source of income for tipped employees. 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.

Access to those tips on a timely basis is critical to employees’ financial wellness. And while employees need quicker access to their tips, providing it to them has often been a challenge, particularly for restaurants, as many patrons add tips to their debit and credit cards, rather than paying cash. Restaurants need to be equipped with the necessary tools that can disburse real-time payments to staff, eliminating delays and the need to divvy up cash at the end of a shift. 

Digital tip disbursement, a relatively recent advancement in payment technology, allows workers to access their tips quicker, instead of having to wait until payday to receive them.

Benefits of Digital Tip Disbursements for Employers

Digital tip disbursements have a number of benefits for employers, including reducing:

  • The administrative burden associated with ensuring each employee receives the exact tips they are entitled to pon reconciliation of credit/debit card transactions.
  • The amount of on-hand cash needed to tip-out employees at the end of their shifts. Not having enough cash at the end of the night can lead to frustration for both employers and employees.
  • Errors associated with determining tip amounts, especially when tips are shared among different co-workers.
  • The risk associated with having a lot of cash on the premises (i.e., loss, theft, security).

Benefits of Digital Tip Disbursements, Including Non-cash Tips and Gratuities, for Employees

Benefits for employees are equally impressive:

  • Instant availability to their tips as they make them, without having to wait for credit/debit card reconciliations.
  • The convenience of receiving tips and their regular pay in the same form. Rather than receiving cash tips and a paper check, for example, employees can receive both digitally (via either direct deposit or instant payment).
  • No issue when a restaurant lacks sufficient cash to pay out tips.
  • Employees receive tips in a safe and secure way, without having to leave their place of employment carrying a lot of cash on their person.
  • Digital tips encourage more responsible financial behavior. Employees are apt to be more fiscally responsible when tips are disbursed into an account or to a pay card, rather than being received in easy-to-spend cash.

DailyPay Extends the PAY Experience with FlexTips for Tip Disbursement

Through an extension of the DailyPay Digital Wallet Solution, employers can include tips in an employee’s daily earnings balance with a solution called FlexTips.

With FlexTips, employees can receive non-cash tips and gratuities instantly, saving employers time and money through digital tip disbursement. FlexTips gives employees full flexibility and control over when they access tips and gratuities, decreases issues and concerns about cash shortages, and introduces cost-savings and real-time insights into what employees are earning.

How it works

  1. The Payroll team provides employees’ information and Tips amount. Employees accrue a balance of earned/unpaid Pay and Tips on the DailyPay platform
  1. Employees choose when and how often to access Pay and Tips and can receive it through an instant or next-day transfer
  1. An employee can receive their tips to any bank, debit card, payroll card or prepaid card. 

DailyPay handles all the early payment of tips to an employee. The employer’s Payroll team only needs to pay out the tips together with base pay once per pay cycle, on payday, through the normal payroll process.

By digitizing the payout of pay and tips and delivering it directly to the employee’s account, FlexTips by DailyPay minimizes the risk of dealing with escheatment responsibilities for the Payroll department.

Learn more about FlexTips by DailyPay.

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