Paying out employee tips in cash at the end of each night might seem like the most convenient option in the moment: there’s no need for formulas at the end of each pay period and your employees are happy to receive immediate payment. In the long-term, however, it could have a significant financial impact for your business and your employees. Especially when you consider the fact that more than 81% of total restaurants sales are paid by debit or credit cards.
Restaurant patrons benefit from a cashless experience due to convenience, deferred payment, and earned points/rewards when using credit cards. While it’s clear that patrons prefer to go cashless, why should you? From employee garnishments that you could be required to pay for out of your pocket to an unexpected tax bill for your employees, here are 5 things you should consider when deciding between cash and cashless.
1. Tax Bills & Zero-Net Checks
Have you ever given an employee a check made out for $0.00?
Have you ever had an employee complain to you about a huge tax bill? There are reasons for this. Every tax season servers across the country are angry at their employer, convinced that their managers made mistakes with their paychecks throughout the year. While they are technically incorrect, there are ways to prevent this issue.
Restaurants that choose to pay their employees in tips each night risk the chance of the employee’s payable gross equaling less than the amount needed to cover their taxes and/or deductions for said pay period. Each time this shortfall happens, an employee’s tax bill increases.
The only way to prevent this from happening is to pay out employee tips electronically at the end of each pay period. If you prefer to continue to pay in cash, you should use your payroll software to run a shortfall report for each pay period. These reports list all of the employees with shortfalls and their total amount due. Notifying employees of their due deductions will allow them to be more financially prepared during tax season. If you’re unsure of how to run a shortfall report, contact your payroll vendor to learn how.
2. Cash Flow Management
Considering that more than 81% of restaurant sales are paid via debit or credit card, it will take at least two days for your restaurant to receive payment for the services rendered. When you pay employee tips in cash, remember that you’re dipping into your own cash coffers to make that payment. This has a negative impact on your cash flow. Additionally, if restaurant managers are making daily trips to the bank for withdrawals, this also has a negative impact on time management.
3. Administrative Burden for Restaurant Managers
Paying employee tips in cash requires more time than you think. In addition to frequent trips to the bank, managers are required to manually reconcile restaurant sales and tips on a daily basis. Spending time on paying tips every night results in several hours wasted each week and the manual calculations increase the chance of human error. Restaurants that choose to pay tips electronically reduce touch points from up to 14 times per week to 1 time per week. They also have access to advanced tip reports such as:
Tips in Excess Report – This report lists each employee by department, their SSN, and their reported tips, along with the tips they needed to get them to the minimum wage. It will then show the excess amount multiplied by the 7.65% in FICA to determine the amount of the potential credit for that payroll and the year-to-date totals.
Tip Allocation Report – This report lists each employee, their tipped hours, indirect and direct tips reported, gross receipts and any necessary allocation amount.
If you’re unsure of how to run either of these reports, contact your payroll vendor to learn how. This information will save you hours of manual work each week and will prove to be a big help for your business come tax time.
4. Footing the Bill for Wage Garnishments
Administering wage garnishments is especially complex for restaurants and hospitality businesses and it is not something to be taken lightly. If you are paying an employee’s tips in cash and their check is not enough to cover their garnishment, it could end with your restaurant being liable for that debt.
There are many misconceptions surrounding garnishment orders, they are more common than you might think. Garnishments extend beyond bankruptcy, child support and tax levies and into more common debts, such as student loans repayments. There are more than 40 million Americans paying off student loans in this country and 71% of college graduates leave school with some form of student loan debt. So whether your employees are recent college graduates or older with families, a tough time financially could end with a garnishment order that you must administer.
5. Complying with the Affordable Care Act
With the recent Affordable Care Act (ACA) mandate, restaurant owners with more than 50 employees are required to pay for a portion of their full-time employees’ medical or health insurance. On the other side of the coin, employees must also pay their share. Deducting their portion is an obstacle for the employer if their check doesn’t cover the amount owed.
Streamline Your Efforts with an Electronic, Automated Process
These five topics are just a few things you should consider when deciding to choose between cash and cashless. When accounting, reporting, and paying tips are coupled with other business duties, tip management can become a daunting process. To streamline your efforts, it’s best to automate your payroll with features designed to help you manage and employ tipped workers. This will save time for your restaurant managers and operations staff, allowing them to focus on the money-making aspects of your business.
All of the reports mentioned in this article are available with BenefitMall‘s restaurant payroll software. To learn more, visit pages.benefitmall.com/restaurants.
