Category: Restaurant Management

Tipping out on payroll can seem like a winning solution for employers: namely, you don’t have to deal with the headache, liability, and health hazards of cash, and it solves the problem of ever-increasing credit card transactions. 

But for employees, payroll tip-outs have some major downsides — most notably the time lag before funds are available.

In normal times, asking hospitality employees to wait weeks for their earnings ultimately puts restaurateurs at a disadvantage. Until recently, workers in a competitive labor market were increasingly opting for positions with employers or gig platforms that pay out daily. 

Of course, the pandemic has turned the labor market on its head — at least for a little while. But that doesn’t change the problem that payroll tip-outs present to workers; in fact, the current environment makes it even worse. Now more than ever, hospitality workers need and deserve every ounce of financial security they can get. 

Let’s take a closer look at the situation, the real impact and some alternatives you have today.

THE SITUATION

There’s no doubt about it: tipping on payroll can make the flow of business simpler for restaurant owners and operators.

• Speed – Process automation can make it a fast option for management when they’re pressed for time. (Which, we know, is all the time.)
• Visibility – Being able to see the whole process can help avoid overpayment of supplementary wages (covering minimum wage and/or healthcare coverage). It also eliminates the human error that is so common with cash tip-outs.
• Ease – Having all taxable income in a single location can make it easier to calculate and take the Tip Credit, as well as comply with tax withholding, reporting and payment requirements.

Tips on payroll can feel like they’re working for your employees simply because they aren’t complaining. But especially now — when hospitality workers know their jobs are on the line — your people may be less likely to speak up, however financially strained they may be.

THE IMPACT

Tipping through payroll puts direct and indirect stress on your people — which, in turn, puts direct and indirect stress on your team culture and the dynamics within business.

3 types of stress your people may be experiencing:

1. Financial Stress – Daily tips are key part of the reason employees are in hospitality. Biweekly electronic payments create a time lag, which can cause major cash flow problems. 
2. Manager/Employee Stress – When restaurants tip out on payroll, visibility and transparency suffer. Often, employees begin to question if tip calculations are done correct when they’re not done daily, which puts managers in the hot seat and can ultimately erode trust.
3. Environmental Stress — A work environment that with culture issues puts a strain on productivity, regardless of whether the stress is due to reasons professional or personal – and that’s assuming they stay with you. After all, 42% of employees have left a job simply due to the stressful work environment. 

Any one of these could be the reason that your talented staff choose to leave for another opportunity, and turnover costs are significant. 

AVAILABLE ALTERNATIVES

Employers have a variety of real-time options to help avoid the downsides of tipping through payroll. 

• Cash – It’s easy for employees to understand the value of their tips when they are paid in cash, but there are a variety of hidden costs ranging from external fees to increased risk of employee theft. 
• Paycards – Cashless options always mean a safer environment for staff, but paycards involve long transfer times and are not accepted by all businesses. 
• Virtual Tech Solutions – Options like Kickfin can transfer tips directly into your employees’ bank accounts, instantly. That means it’s available for use right away. This combines the immediacy benefit of cash, the security benefit of paycards, and the hassle-free benefits of payroll, while eliminating all of the cons.

Tipping on payroll impacts your business in both visible and less visible ways. Explore all your options, so you don’t lose out on talent for reasons completely in your control. 

In recent weeks, big-name players and small independent outfits alike have rapidly pivoted to off-premise delivery or curbside services — a model that many of these restaurants had never considered before the coronavirus pandemic required them to.

Fortunately, shutdowns and social distancing are not forever; but that doesn’t mean the shifts you’ve made to your operations should be temporary, Band-Aid solutions.

While these changes may seem challenging, or even forced, savvy restaurateurs are finding ways to leverage them in their favor so their businesses and their teams can benefit in the long term.

As you’re pivoting, be sure that you’re making strategic decisions wherever possible — so that you’re not only responding to today’s situation, but also positioning your business for growth as our industry rebounds.

Is your business ready for the changes you want to make?

“Readiness is all about building agility into your fundamental business model,” says CohnReznick’s Stephen Mancini, Hospitality Operations Leader. “Although you can’t spend weeks, months, or years solving the problems confronting you today, you do have the opportunity to evaluate with a fresh perspective.”

Below are six variables and opportunities to consider as you’re navigating this new normal and planning for relaunch.

1. Review Your Fixed Costs: Look at your existing contracts. What are you paying in rent and on your lease/mortgage? This is the basis for leverage in renegotiating with your landlord or bank. (It will also help you determine whether government relief opportunities are applicable.)

2. Revisit Your Labor Framework: Is your staffing plan labor-heavy? Review what is truly required to keep your team in place. Consider ways to operate more efficiently in-house. Changes need to factor in both monetary savings and what will be needed to support the pivot to off-premise delivery or curbside services.

3. Reevaluate Your Cost of Goods Sold: What does it really cost to produce your menu? Make sure you get more product into the fast-casual concept as you pivot. Buy in bulk whenever possible, and use your buying power to secure the best pricing. You may also find ways to retool your offerings, such as adding another pasta entrée or lower-cost menu item. 

Are there new tech solutions that can support your pivot?

Restaurant owners/operators rarely have time to explore the entire technology landscape. Focus on options that will support your movement toward off-premise delivery or curbside services.

Keep in mind: While your budget may be constrained given the current market, many platforms are providing their software for reduced rates to support new and existing customers during this difficult time.

4. Leverage tech that delivers a new customer experience. Introducing an online reservation/ordering service or tapping into a reservation/ordering call center would mean that you no longer need a dedicated host on-premise for nine hours each day. Centralizing this labor-intensive activity compounds the savings for multi-unit operations.

5. Utilize tech that impacts the employee experience. During the Covid-19 crisis, more people are paying online or with credit cards. Many restaurants are attempting to reduce the amount of cash on their premises, as it harbors hazardous germs.

Implementing contactless payments for tip-based income means you can reduce the amount of cash on your premises, without making employees wait for tips to come through on payroll. This is more important now than ever before, as many hospitality workers are suffering financially. (Bonus: You do not have to factor in the hidden costs of tipping out in cash.)

6. Employ tech that further simplifies your operations. Available technology can scan invoices and drop them directly into your accounting system. You could shift your bookkeeping labor to help keep you on top of invoicing/purchasing or eliminate your bookkeeping labor costs altogether.

In order to survive, hospitality businesses must be extremely nimble and make decisions fast, but that doesn’t mean you can’t think long-term. Prepare for the future by making strategic operational changes now — and wherever possible, take advantage of today’s technology to help you work through the practical realities of pivoting to off-premise delivery or curbside services.

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Stephen Mancini is a senior manager in CohnReznick’s Strategy and Transformation Advisory practice and the firm’s National Hospitality Operations Practice Leader. Stephen focuses his practice on areas of growth and innovation strategy, corporate and business unit strategy, go-to-market strategy and execution, operational value creation and digital and technology transformations.

CohnReznick’s online Coronavirus Resource Center provides guidance for your business during this uncertain time. This resource is available to the public and provides detailed insights on managing risk and addressing challenges during this pandemic as well as content on preparing for future disruptions.