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Many restaurants and hospitality groups are still tipping out in cash because it’s “easy” or it’s “the way we’ve always done it.”

If you’re in that camp: we get it.  

Sticking with the status quo is comfortable. Paying out in cash daily also helps with recruitment and retention: hospitality employees expect (and deserve) to get paid in real-time. And meeting that need is critical in the face of today’s labor crisis, when restaurants and bars are competing for talent with other establishments and gig platforms.

But the reality is that cash distributions aren’t the only way to tip out in real time. And they actually come with a whole host of hidden (unnecessary!) costs that could be putting a major dent in your bottom line. 

Don’t take our word for it: here are five ways that your business may be “paying” for cash tips.

1. Employee Theft

You work hard to hire the right employees: people you can trust. You ask the right questions, check all their references, run the background checks.

You can do everything right, but employee theft still happens. An estimated $3-6 billion of revenue is lost annually as a result. 

Does it mean your employees are bad people? Not necessarily. But tough personal times — or pure temptation — can lead good people to make bad professional choices and justify illegal behavior. Reducing or eliminating cash held on premises for tipping out reduces the risk (and temptation) of both minor skimming and major theft.

2. The ABC of Fees 

Accounting Fees – Cash tip reconciliation, accounting for last minute bank cash orders is time-consuming. Your bookkeeping firm will bill for the additional hours needed to accomplish these tasks. If you’re also at the helm of a multi-location establishment, you’ll need to plan for the reporting delays and additional cost involved in requesting payroll reports from each location.  

Bank Fees – As many banks outsource their vaulting to cash management companies, they roll a piece of their cost for this service down to their customers in the form of a fee for local cash pick up. Combine this particular fee with a massive liability issue – anything could happen while your GM is off premise to courier the cash, including theft or robbery. 

Cash in Transit Fees – Choosing to use an armored car service to deliver cash is common practice for high-volume locations. However, it comes with both a fee for delivery and for the cash itself. These fees can range from $250 – $400 per week.

3. Labor Cost Tradeoffs

Employees will stay on the clock waiting to tip out since both the employer and employee need to be physically present when currency is exchanged. 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.

Alternatively, if send them home to save “on clock time,” they’ll likely come back the next day to complete the envelope pass. This means pulling your manager off the floor and away from core responsibilities. You may have saved on employee labor costs yesterday, but now the labor cost is at your manager’s salary level. 

4. Rounding Up (and Down)

Some employers use a time-rounding policies that can result in shortchanging employees on wages they were scheduled to earn. Other employers round up or down on tips, which either inflates the tip outs or withholds money that is supposed to be payable to the employee. The rationale used in both cases is that eventually it all evens out. Beware the security risk you are inviting here. Employees can claim that you are underpaying them for their time and/or their tips since it is not an accurate disbursement each night.

5. Employee Safety & Wellness

Restaurateurs also often feel responsible for their employees in ways that don’t apply in other work environments. You spend a lot of time together and it starts to feel like a family. As the head of that family, you can make choices to further promote employee safety. For example, employees feel safer and more secure leaving at night without cash in their pockets. They also report that tipping out in something other than cash means they tend to spend less of their tips on frivolous things.

Operating a restaurant and making decisions for a hospitality group means looking for ways to simplify your backend processes so that your frontend can delight customers and exceed expectations.

But for years, optimizing the tip out process wasn’t an option: because a better way didn’t exist, restaurateurs had to simply accept the cost of cash tips as part of doing business. 

Good news: that’s no longer the case. Innovative, easy-to-use technologies present safer, more efficient alternatives to tipping out in cash. They can make a standard process easier for you and your team, decrease liability, and eliminate other hidden costs to your business. 

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4 Reasons Why Prepaid Cards Are Bad for Restaurant Employees

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If you’re one of the many restaurant owners or operators who uses prepaid cards to tip out your employees: we get it.

On the surface, prepaid cards, or pay cards, seem like a smart solution to the daily (and nightly) tip-out dilemma. Managers don’t have to acquire and distribute cash, which saves time and hassle. Plus, you’re keeping your employees safe — because no one is more vulnerable to theft than when they’re walking to their car with a pocket full of cash in the wee hours of the morning. And the biggest perk of all: you’re giving your employees instant access to the money they worked so hard to earn.

Except: you’re not.

Unfortunately, prepaid cards aren’t as simple or seamless for your employees as they may be you. What seems like a superior alternative to cash tip-outs could actually be costing your people a sizeable chunk of their earnings — and creating other unintended consequences — every time you load up and hand out a card.

Here are four reasons why prepaid cards could be making life harder for your staff.

1. Hidden fees

It’s not an exaggeration to say that prepaid cards are predatory. Prepaid cards come with a slew of fees that will add up incredibly fast when your people try to use their cards. Want to make a purchase? Check your balance? Withdraw cash? It’s not uncommon for people to be hit with fees for all of the above.

Depending on the card or vendor you choose, hidden fees can include:

Transaction fees: Transaction fees for prepaid cards may include a monthly fee or per-purchase fee; ATM withdrawal fees; and cash reload fees.
Service fees: Service fees for prepaid cards may include checking your card balance at an ATM; fees charged when you call customer services; and inactivity fees.
Other fees: Again, depending on the card or vendor, your employees could run into miscellaneous fees listed within the “fine print.”

Suffice it to say, when restaurant employees attempt to use prepaid cards, they’re likely losing valuable dollars they’ve earned. And while that’s frustrating for everyone involved, it could lead to an even bigger problem for your restaurant — because your people could start looking for a new employer in our competitive gig economy, where they’ll get immediate access to their earnings without having to pay for it.

Waiting for prepaid card transfer

2. Long transfer times

The hospitality workforce has been overtaken by millennials, and their Gen Z successors aren’t too far behind. This 35-and-under crowd has a deep affinity for all things automation. That’s especially true for monotonous, unpleasant tasks…like paying bills.

You’d be hard-pressed to find a millennial who doesn’t have at least one of their utilities or subscriptions (power, phone, gas, cable, Netflix…) set to auto-pay, so that payment is pulled directly from their bank accounts on a monthly basis.

That can be a problem if you’re living paycheck-to-paycheck and you’re not getting access to your tips after your shifts. Unfortunately, “instant” pay cards aren’t a solution. Not only can it take 2-4 full business days to transfer and receive funds from your card to your bank account — but your employees will often run into fees for attempting to do so. It’s yet another inconvenience for your people (and another way pay cards make their money).

3. Low vendor acceptance

Prepaid cards are different than debit or credit cards. Again, it depends on the card you’re using — but it’s not unusual for prepaid cards to get turned down by specific types of vendors. In other words: prepaid cards may not be accepted everywhere your employees wish to spend their money.

It seems people run into the most issues with travel-related vendors — like car rental services. According to Chime, vendors that typically put holds on cards may be less inclined to accept a prepaid card, as they don’t come with a name or expiration date.

4. Fewer regulations

It’s no secret that checking accounts and credit cards are highly regulated to protect consumers from fraud and loss. Until this year, prepaid cards weren’t afforded the same protections.

Fortunately, in April 2019, a new Consumer Financial Protection Bureau rule extended some of the existing checking account and credit card regulations to prepaid accounts — but there are several caveats.

For example, in order to be covered by several of the new protections, users must register their cards. If your restaurant employees neglect to register their card (typically through an online form), then they won’t have the right to dispute fraudulent charges or get reimbursed following loss or theft.

Another catch: in the event of unauthorized charges, prepaid card users are required to pay the first $50, and if they don’t report the unauthorized charges within two days of the activity, that number can go up.

Without question, restaurants that use prepaid cards as a tip-out solution have only the best intentions — and they may be saving their managers the time and hassle of dealing with cash. But the hidden issues that come with prepaid cards make them less than ideal for your employees — and ultimately, it could cost you your best people.

Here’s the good news: with Kickfin, you can deliver your employees’ tips directly to their bank accounts in real time — with complete transparency, and no hidden fees. Get a demo today!

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