FSTEC Recap: Tip Management 101 Forum

Restaurant operators and tech companies descended on Dallas to meet at FSTEC, the premier conference to learn about exciting new solutions for the quickly-automating restaurant industry.

Our very own Brian Hassan, co-founder and co-CEO of Kickfin, joined a panel to talk about everything tip management — including employee buy-in, legal compliance, and profit growth. Brian discussed the importance of creating a tip management strategy and how to execute on it alongside Mike Manley (Senior IT Director, Dave & Busters), Ken McGarrie (Founder, Korgen Hospitality), and James Fessenden (Partner, Fisher Phillips).

Watch the full video or check out our key takeaways from Brian’s conversation.

Building a Tip Management Strategy

Things are changing in the restaurant industry — and fast. A unified tip management strategy should be a key component of your restaurant’s operations.

Why?

Fewer cash transactions at restaurants
Servers still want daily tip payouts
Changing IRS policies for claiming tips
Competition in the labor force

Forward-thinking restaurateurs are already investing in tech to automate many aspects of their business, so your tip management strategy shouldn’t be left in the past.

For restaurants looking to scale, having a single strategy across all your locations is the best way to simplify operations, ensure compliance with tip pooling laws, and prevent theft. You’re going to have growing pains, but paying employees efficiently should be priority number one.

So how do you create a tip management strategy?

Choose a tip pooling system
Decide how you’d like to pay out tips to employees
Monitor for compliance with tipping laws

Tip Distribution Models

85% of our customers are currently sharing tips, one way or another, but there isn’t a one-size-fits-all tip distribution model.

For QSRs, it’s pretty simple: pool tips and divide them by hours worked. At QSRs, you’re all working as a team to serve customers quickly, whether you’re running the cash register or manning the drive-thru window. It feels fair for employees to share tips based on how long each team member’s shift is.

Things start to get tricky when splitting tips at FSRs, especially in fine dining. Servers provide the majority of direct service to guests, but there are a lot of key people involved in the entire dining experience (hosts, runners, bartenders, and bussers).

Many FSRs will use a “points” system to assign a share of the night’s tips based on their role, or servers will “tip out” the other supporting staff members based on a percentage of their sales. Beware: splitting by percentages can often veer into non-compliance without proper management.

>> Learn more about tip distribution models here

Once you’ve chosen the right tip distribution model for your business, communication is key. Employees should be notified in writing about the tip pooling policy, but you should also be talking to them about why you have this policy and how it will work.

Pay-out Methods

Once you’ve split up the tips, how are you going to pay them out to employees?

Cash

Cash has ruled the restaurant industry for decades, and most servers have come to expect an envelope of dollar bills at the end of every shift. But does it still make sense?

While 90% of hospitality outlets are still paying out in cash, some restaurants are seeing as low as 1% of transactions paid in cash. This creates a logistical problem for restaurants who have to order cash deliveries or send a manager out to withdraw thousands of dollars just to pay servers.

Cash also opens the door for theft. Servers leaving work with a wad of cash in their aprons are easy targets, putting their physical and financial safety at risk. Owners also run the risk of employee theft. Since cash isn’t traceable, that money is gone.

Now that the IRS is planning to use POS data to estimate tips, cash could also cause major issues for servers at tax time. The POS data might show that a server likely earned $200 in tips (claimed or not), but it doesn’t account for how much a server had to tip out. If you’re only left with $150 after tip out, why would you want to be taxed on $200?

Payroll

Putting tips on payroll is probably the easiest option for restaurant managers. It makes for straightforward compliance and takes much less time than counting cash.

But (and it’s a big but), servers are used to an influx of cash on the daily — not every two weeks. You run a big risk of losing veteran servers and struggling to hire new staff when you move their tips onto payroll.

Digital Tipping

The innovative tech we mentioned earlier? This is it. Rather than cash or payroll, you can look into digital options that will free you from cash without alienating employees.

But there are still options in the world of digital tip outs: Prepaid cards and instant, direct payouts. Prepaid cards were the earliest iteration of digital tip outs, offering employees their tips instantly on a card provided by their employer. They come with some major drawbacks though, including fees, restrictive ATM networks, and questionable legality.

Direct digital payments send the tip right into employees’ bank accounts. No one needs to add another card to their wallet or spend time transferring funds from a prepaid card to their normal bank account.

The Digital Tipping Landscape

Ready to try digital tip outs? You have a lot of options — including Kickfin!

When choosing a digital tipping partner, you have some things to consider. First and foremost, solve problems one at a time, in order of importance. Seek a solution that best fits your pain points without overcomplicating things.

Here are some things to consider when choosing a digital tipping solution

Does it send payment instantly?
Does it have a payroll option for unbanked employees?
What does the implementation and onboarding look like?
Can it integrate with your POS?
Does it manage compliance?
Will it make employees’ experience better?

If you choose wisely, the impact of your tip management system will go far beyond paying employees. For one, your employees will stick around for longer. Our survey found that Kickfin was the top reason that servers decided to stay at their current restaurant. And with more time on their hands, managers can do their most important job — creating more profitability for your restaurant.

Compliance

Remember: tipping laws are no joke. Here’s a quick refresher (but always ask an attorney for personalized legal advice).

The Tip Credit

If your employees are earning more than $30 every month in tips, you are allowed to take the tip credit. According to federal law, you can pay employees $5.13 less than the state’s minimum wage per hour, as long as the employee is making up the difference in their tipped earnings. This only applies in states where the tip credit is legal (sorry, California restaurant owners).

Tip Pooling

As we mentioned before, tip pools are a great way to reward FOH staff for their part in creating excellent guest experiences. But, when not carefully monitored, tip pools are one of the easiest ways to get in legal trouble for wage theft.

Depending on your state, mandatory tip pools may not be legal, but employees are always welcome to create a voluntary tip pool. Where mandatory pools are legal, BOH employees and managers are not allowed to participate in the pool.

As a general rule of thumb, California is leading the charge as tipping laws evolve. Look to their current laws as a blueprint for what other states will be putting in place in the near future.

Tip Management Best Practices

As you’re creating (or recreating) your tip management system, follow these tips from the panelists.

Keep It Simple

There’s no need to have a complex tipping system if you don’t need it. Come up with a single system that will work at all of your locations. Same goes for your tech stack — don’t add tools that you don’t need. Only bring in technology that makes your life easier without overcomplicating it.

Be Transparent

You’re making changes to your employees’ livelihoods, so keep them in the loop. As you develop your tip management strategy, have an open-door policy where employees can come to you with concerns or with pain points they’d like a solution to.

Also, always give written notice of your tip policy to your employees and have them sign it. This goes for changes to your use of the tip credit or for tip pooling.

Know Your Market

To retain staff as you make these changes, you need to know what other restaurants in your area are doing. If it’s common practice to pay tips on payroll (as it is in New York City), then you may not need to worry about losing employees to daily pay restaurants. But if your competitors are handing out cash daily, make sure you have a solution that is just as enticing for servers.

Thanks to FSTEC for giving us this opportunity — we can’t wait to see you all again there next year. In the meantime, if you’re looking for a first step to overhauling your tip management strategy, check out our FREE tip pooling templates.

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Product and Company News

Kickfin Ranked 65th Fastest Growing Company on the 2024 Deloitte Technology Fast 500

We’re thrilled to announce that Kickfin made the Deloitte Technology Fast 500™ list, a ranking of the 500 fastest-growing technology, media, telecommunications, life sciences, fintech, and energy tech companies in North America.

How Kickfin stacks up

Overall, 2024 Technology Fast 500 companies achieved revenue growth ranging from 201% to 153,625% over the three-year time frame, with an average growth rate of 1,981% and median growth rate of 460%.

Our 2,144% revenue growth earned us the 65th spot on Deloitte’s list. It’s another exciting milestone for Kickfin — but more importantly, it’s a meaningful validation of our mission to take the clunk out of tip management, so payouts are faster, smarter and safer for every restaurant team we serve.

Based on Deloitte’s ranking, Kickfin is:

The highest-ranked restaurant tech company on the list
The *only* tip management company on the list
Austin’s fastest-growing tech company

Growth driven by product innovation, demand for automation

Kickfin was the first digital end-to-end tip management solution on the market — and with more than $2 billion payouts to more than 250,000 restaurant employees, we continue to be the largest and top-ranked.

Why?

It comes down to working the way our customers work — and not the other way around. Not only do we automate the tip pooling and payout process for thousands of restaurants and bars; no two tip policies are alike, so we’ve built a solution that gives them the flexibility and customization they require.

With more than $2 billion payouts to more than 250,000 restaurant employees, Kickfin continues to be the largest and top-ranked tip management software on the market.

That’s a big reason we’ve focused on building direct, robust integrations with the leading POS systems on the market. So far, we’ve rolled out integrations with Toast, SkyTab, Oracle, PAR, Heartland and Square — and the list continues to grow.

“In recent years, digital tip management has become table stakes,” said Justin Roberts, Kickfin’s co-founder and co-CEO.

“Operators now understand the significant efficiencies to be gained by eliminating manual tip-out processes. It’s no longer a question of ‘if,’ but ‘how.’ As a direct result of our commitment to innovation and customer success, we’re thrilled to see more and more restaurants select Kickfin to modernize their tip management.”

A big thank-you to our customers who trust us with their payouts, to our partners who support, collaborate (and integrate!) with us, and of course, every member of the Kickfin team.

About the Deloitte 500

Now in its 30th year, the Deloitte Technology Fast 500 provides a ranking of the fastest-growing

technology, media, telecommunications, life sciences, fintech, and energy tech companies — both public and private — in North America. Technology Fast 500 award winners are selected based on percentage fiscal year revenue growth from 2020 to 2023.

In order to be eligible for Technology Fast 500 recognition, companies must own proprietary intellectual property or technology that is sold to customers in products that contribute to a majority of the company’s operating revenues. Companies must have base-year operating revenues of at least US$50,000, and current-year operating revenues of at least US$5 million.

Additionally, companies must be in business for a minimum of four years and be headquartered within North America.

Ready to take the next step?

See how brands like Walk-On’s, Marco’s, Bar Louie and more are automating tip pooling and payouts with Kickfin. Schedule your 10-minute demo today!

Industry Trends

How the 2024 Presidential Election Could Affect Taxes for Tipped Employees

It’s an election year, in case you haven’t heard! 😉 This one has major implications for tipped employees — specifically, when it comes to taxes.

It’s no secret that our Democratic and Republican candidates are running on very different platforms. But when it comes to tip regulations, Vice President Kamala Harris and Former President Donald Trump actually both support reducing taxes on tips.

A little context on taxes and tips

We’re just going to state the obvious: For the average American, tax reporting can be pretty, pretty confusing. For the millions of employees working in tipped occupations — well, that creates another layer of uncertainties.

(Do I have to report my tips? Do have to report my cash tips? Will anyone know if I don’t report my tips? What happens if I don’t accurately or fully report what I earned?)

Historically, there’s been a trend of hospitality employees underreporting cash tips to prevent higher tax burdens. And while this may reduce what employees owe Uncle Sam in the moment, there can be downsides: e.g., if they find themselves eligible for unemployment, if they’re trying to qualify for an auto loan or mortgage, etc.

However, that urge to underreport could be relieved in the near future, given the tax code changes both of our presidential candidates have proposed. The TL;DR: Both Trump and Harris have voiced their intention to relieve some of the burden on tipped workers in restaurants, bars, hotels, and other service positions.

Here’s a quick summary of each candidate’s plan, as well as some potential impacts for restaurant employees.

Trump’s plan for tipped employees

Trump shared his plan to reduce tipped income tax burden at a rally in Las Vegas — fitting for a city that’s built on the gig economy. Nevada is home to the highest concentration of tipped employees who work in the many hotels, casinos, and restaurants that millions of tourists flock to annually.

During the rally, the former president announced that he would make tipped income exempt from federal income tax, stating it would happen “right away” when he takes office.

Since speaking at the rally, Trump has not yet clarified what this would mean for tipped employees. Many servers want to know if this is an exemption just on federal income tax or if the proposal includes payroll taxes (social security and Medicare).

Harris’s tip tax proposal

Harris also took the opportunity to speak on her tipped income policy while visiting Nevada. Much like Trump, she knew she’d have a captive audience when it comes to tipped earnings.

Her proposal promises to exempt tipped income from the federal income tax, but she has made clear that tips will still be subject to payroll taxes. While not yet confirmed, campaign insiders say Harris is considering placing some guardrails on her plan — like a caveat that the tax exemption only applies to employees earning less than $75,000 per year.

Is one plan better than the other?

In short: probably not. (Most service and hospitality workers do not earn above the $75,000 threshold that’s been suggested by the Harris campaign.) So either way, servers, bartenders, and hospitality staff can expect to see a lower tax burden during the next administration.

But what does that look like in practice?

Most tipped employees aren’t receiving their tips on payroll — they’re walking out of every shift with their earnings for the night, deduction-free. Instead, the taxes are paid on payroll out of their hourly earnings, which is why many servers get $0 paychecks every two weeks. With a reduced tax burden, most servers will see the difference in higher paychecks.

On the other hand, economists are wary of the impact of eliminating taxes on tips, citing the reduced funding for social security and Medicare. And with so much negative sentiment around “tipflation” these days, experts also speculate that a reduced tax burden may result in even more hesitance at the tip screen.

Increasing minimum wage

We’re closely following campaign promises about an increase to the minimum wage — especially in regards to the tipped minimum wage and the tip credit.

Minimum wage earners have been eyeing an increase, noting that the federal minimum wage of $7.25 per hour hasn’t increased since 2009, and servers, bartenders, and other tipped employees have been earning $2.13 per hour for over 30 years. An increased minimum wage paired with the reduced tax burden could make a major difference for service workers trying to keep up with the rising cost of living.

In the Harris camp, removing tax on tips is just part of the plan to take some pressure off service workers. While Harris hasn’t shared a detailed plan for bumping up the minimum wage, she has indicated that she would support an increase.

In previous election cycles, Trump stated that he would consider a minimum wage increase, but he has not shared his opinion on the matter during the 2024 presidential campaign.

Of course, we’re a ways out from any real policy changes actually shape — but if you’re looking to make your tip management process less taxing in the interim (see what we did there?), Kickfin is here for you! Check out how you can use Kickfin to auto-calculate tip pools and send payouts directly to employees’ bank accounts in seconds.

Restaurant Management

Top 4 Ways to Protect Your Restaurant from Cash Shrinkage

No matter what industry you work in, there’s always a risk for shrinkage and theft. Ninety-five percent of all businesses experience theft in the workplace, and up to 75% of employees have admitted to stealing from their employer.

Most of the time, it’s not intentional or malicious. For restaurants, it could be something as innocent as giving your friends a free drink or asking the kitchen for food and neglecting to ring it in.

But when you have a lot of employees handling cash day in and day out, it can be very tempting for someone to take advantage of systems and pocket extra money at your expense. To make matters worse: because cash is hard to track, it can be tricky for operators to put their finger on exactly what’s happening — at least, before it starts to impact your bottom line.

While cash shrinkage can jeopardize your business, operators do have the power to protect their restaurants. Ultimately, it comes down to having the right processes, systems and partners in place.

Here are 4 things you can start doing today to protect your restaurant from cash shrinkage.

1. Create a culture of trust with employees

Most people want to come to work, do their best, and make an honest living. Creating an environment where your employees trust you with their earnings should encourage them to also be responsible with company assets, including cash.

Of course, it starts with doing your due diligence when building out your team. That means interviewing new hires in person, asking the right questions, and always checking references.

But the fact of the matter is that even good people can make poor decisions, especially when they’re struggling. As an employer, there are things you can do to keep your staff from ever getting to a place where they feel the urge or need to steal. That includes:

Paying a fair and competitive wage
Paying wages on time, in full
Giving people instant access to their earnings
Offering employee benefits and perks if possible
Adhering to federal, state and local labor/wage regulations, especially as they relate to tips

Bottom line: If you show that employees you take their financial well being seriously, it can foster an environment of mutual respect, making employees less likely to consider theft as a reasonable (or justifiable) option.

2. Minimize cash touchpoints

It’s simple. Less cash on hand = less opportunity for cash shrinkage.

In the unfortunate case that a high-ranking employee is stealing from your restaurant, cash tip outs make it much more difficult to catch and trace. Anyone with access to cash registers and safes has the opportunity to take a few extra bills — and you may not notice until well after the cash is pocketed and spent.

Instead of locking up cash and making only a few employees responsible for the massive task of paying out tips, take advantage of new technology that eliminates cash from the tip out process. Fewer people will need to manage cash, which adds one extra layer of security against theft.

Bonus: cashless tipping vendors like Kickfin give your employees more flexibility with their earnings. They can opt for tips to be sent directly to their bank or to have them put on their payroll check, empowering employees to make their own financial decisions.

3. Create a digital paper trail

The trouble with cash is the inability to track it. Half the battle is realizing that the cash is missing; and once you know it’s gone — well, now what?

Digital gratuity management software makes it easy for restaurant operators to create a digital paper trail for all tip payouts. You’ll be able to identify any improper payments, who they went to, and who authorized the payout — removing a major security soft spot.

Not only will you feel more secure, but your loyal employees will thank you for making tip outs much easier.

4. Select a secure tip management partner

Removing cash-on-hand is a great first step, and it should make any potential theft traceable back to the person responsible. But wouldn’t you rather prevent theft before it happens?

If you’re ready to bring your gratuity management into the future, make sure to thoroughly vet your options — because not every digital tip out software has strong protections against theft.

That’s why Kickfin has optional guardrails that can mitigate your risk of employee theft.

Maximum tip amounts: Limit the amount that can be issued in any individual payout.

Role policies: Create policies to limit who can receive payments by role type, and limit who can send payments to themselves.

Multi-factor authentication: Set your own rules to require MFA at any point, whether at every login or once a month.

Payment interval approval: Trigger a requirement for second approval for an employee’s first payment or their first payment in a determined number of days.

Payment velocity approval: Trigger a requirement for second approval when an employee receives a determined number of payments within a certain interval.

For our POS integration partners, Kickfin can also put guardrails around your tip calculation policies to prevent fraud. While we offer the ability to send payments through manual entry, spreadsheet upload, or using our tip calculation software, integration users can disallow manual and upload payments to prevent any ad hoc payouts.

Integration users can also lock in their tip calculation rules, so that only certain users can make changes to the calculation policy.

How Kickfin helps in the event of fraud

Even without the temptation of cash in the safe, where there’s a will, there’s a way.

If you find yourself in a regrettable situation with an employee, your tip management partner should be there to back you up. Thankfully, our platform tracks each payout which will help you identify irregularities and the source of the problem.

The Kickfin team will always be there to support our partners who experience security breaches.

Check your Kickfin security settings

Do you want to make sure you have the most up-to-date protections on your Kickfin account? We’ve got you covered. Reach out to your Kickfin customer support team to ask about a free security audit, where we’ll go over your current settings and offer guidance on how to minimize your risk.

Not yet a Kickfin user? Find out more about our platform and security settings with a demo today.

Restaurant Management

4 Ways to Save on Restaurant Labor Costs with Kickfin

In the restaurant industry, profit margins have always been tight — and these days, they’re only getting tighter.

Running a restaurant is a labor intensive business. You need a strong back of house team to push out food, front of house workers to greet and care for guests, and managers to keep everyone in check. Naturally, labor is one of the most significant expenses for restaurant operators. In order to keep costs reasonable for customers, even a slight overage on labor can break your budget — but thankfully there are levers you can pull to reduce labor costs.

If you want to secure your business’s financial future, you’re going to need to streamline scheduling practices and keep a close eye on labor costs… without frustrating employees who want more shifts.

Don’t worry: you can turn to traditional wisdom, sales forecasting, and emerging restaurant technology to make sure that you stay on budget.

Here are a few ways you can save on labor costs at your restaurant:

1. Rethink the schedule

Obviously, the most straight-forward way to cut labor costs is to reduce the number of people you schedule on a given night.

We get it — you don’t want to see hour-long ticket times and poor guest experiences. But you might not need as many folks on the line or servers on the floor as you think — at least, not all the time.

Staffing and scheduling isn’t a perfect science, but there are some tactics operators should test if they’d like to “right size” every shift — including:

Analyze your daily schedule. Don’t make assumptions about your peak times and slow periods. Analyze sales trends and let the data be your guide.
Anticipate seasonal trends. If you’re in a college town, don’t wait until your servers are twiddling their thumbs in July to implement a new summer schedule.
Let your seasoned staff shine. Your veteran employees likely thrive on those super busy nights when they’re running on pure adrenaline (and earning way more in tips). Consider giving more experienced workers more responsibility — assuming they’re willing and able — and you might be able to get away with fewer people on a shift here and there.

>> Learn about scheduling software that helps you manage labor and engage with employees

2. Assess and address productivity

Are you making the most of the team that you already have? There are a few ways you can identify your highest-producing employees and make the most of their success:

Evaluate employee performance. Most employees want to be successful; observe your team and analyzes things like sales per labor hour, table turnover rate, and tip volume to get a sense of your strongest players and those who could use more training (and bonus: this can reduce turnover and boost team morale)

Provide incentives. Create a fun bonus system that rewards strong performance and high levels of productivity. You can use data from the previous data point to set goals.
Cross-train employees. Training your staff to handle multiple roles – or hiring folks with vast service experience – offers flexibility for scheduling and can reduce your need for additional hires.

3. Don’t pay employees to wait for their tips

No, we’re not saying to cut all of your servers early (no matter how much they ask).

But, you can send your servers on their way much quicker when they don’t have to wait around for managers to count out cash tips. Once they’ve finished their sidework, servers can clock out and see their digital tips sent directly to their bank account, instead of hanging around on the clock waiting for the shift manager to do their check outs.

4. Prevent labor overages before they happen

Most restaurants simply can’t afford to pay overtime for staff. But sometimes your full-time staff creep toward 40 hours of work without anyone noticing…and suddenly you’re paying 1.5x what you expected for a single worker.

This, too, goes back to proper scheduling policies. Give yourself a bit of wiggle room for the employee who clocks in 10 minutes early or often takes a long time on sidework by never scheduling anyone for more than 38 hours each week.

5. Pay close attention to clock-outs

People make mistakes, and tired servers often leave their long double shift without clocking out for the night. Usually, they’ll realize their mistake and call the store to have someone clock them out (still adding extra time to their shift).

But sometimes, the clock keeps running all night, and no one notices until it’s time to process payroll. Two weeks later, your admin team is spending way too much time correcting clock-outs so that you don’t end up paying for 8 extra hours of work.

Try using technology that puts guardrails in place to prevent any clock-out mistakes before they happen. Kickfin doesn’t allow you to process and pay out tips until an employee is clocked out, so managers can make sure everyone is clocked out at the proper time.

(We also have some other exciting new features that can make your life easier!)

Not only can Kickfin help you reduce labor costs, but we’re ready to simplify your entire tip management process. Reach out to us to learn more about our instant tip calculations, integrations, and smarter tipping solutions.