The Hidden Cost of Tipping Out in Cash

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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