Tip option on debit/credit machine

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Joined Aug 9, 2018
Here is a pool I just don't whether to jump into or not. Most independent coffeeshop/bistro operations have the tip option on their debit machines. Our competitors such as Starbucks and Tim Horton's generally do not have the option. I have discussed this with my friends in the business who do have the tip option. They say that it makes a difference of up to $3. an hour for their employees. We have counter service with an old toaster with (tippers are hot). The toaster garners our staff about 75 cents an hour. I just don't like the idea of throwing this tip thing into the face of our customers who then have to make this snap decision...do I look like a cheapskate?....or dammit hit 15% or whatever. Now I could just raise prices to give our staff the equivalent of the $3. an hour. One of the main reasons I am faced with this dilemma is the competition for competent staff attracted by decent wages compared to the franchises. I am lucky to have a great core staff who have been with me for around 20 years but we are all getting a little long in the tooth. Our prices are dirt cheap compared to other similar operations so there is quite a bit of wiggle room there. SO...the question is....if you throw more money into wages do you have an easier time finding people glad to come to work? Question #2 is it better to raise prices or bother customers with the tip option.
 
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Joined Sep 26, 2017
I love the tipping option on the machine. So convenient I just want to keep hitting the tipping button over and over.

I always feel bad for the employee when this option doesn't exist, because I don't carry any cash, ever.

Same with the credit card slip without the space to write down the tips; I feel so bad.
 
452
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Joined Oct 1, 2006
Another aspect that may impact your decision is that cash tips are tax free and having the paper trail creates taxable income for tip recipients. I always leave $0 tip on restaurant credit card payments and leave cash tips. Unless the Gov. changed the rules I will continue to do this to the benefit of my servers.

Since you have a core of 20 year folks you could even ask them for their input since they are impacted most.

What are the costs to you of changing to a tip option? How much to change back? If easy to change back, try it for a period and if folks are unhappy change back.

Good Luck!
 
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Joined Aug 9, 2018
Another aspect that may impact your decision is that cash tips are tax free and having the paper trail creates taxable income for tip recipients. I always leave $0 tip on restaurant credit card payments and leave cash tips. Unless the Gov. changed the rules I will continue to do this to the benefit of my servers.

Since you have a core of 20 year folks you could even ask them for their input since they are impacted most.

What are the costs to you of changing to a tip option? How much to change back? If easy to change back, try it for a period and if folks are unhappy change back.

Good Luck!
The problem with trying it out is that once you are in it you are pretty much stuck. I would have to have a giant meeting with the staff with the agreement that this is a trial only....because if I did it and then quit they would be impacted financially so I would probably have to compensate them to the same tune with a wage increase. I just can't bring myself to give something and then take it back.
 
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Joined May 25, 2015
If you want to consider an academic perspective this is an interesting read.

I will note that with the advent of debit and credit-card terminals, the automatic tip option can leave you with unintended results. While out for lunch recently, my girlfriend noticed that when she selected the convenient 15-per-cent tip option on the handheld terminal, it added 15 per cent on top of the entire bill, including tax.

When I've mentioned this observation to other people, most also indicate they don't like the idea of tipping on taxes.

And there's another reason to abandon the preselected gratuity option: I've caught myself embarrassed at how low the tip is in some instances when I haven't ordered much to eat or drink.

Read the entire article here:

https://www.theglobeandmail.com/glo...y-of-the-automatic-tip-option/article4097563/
 
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Joined Oct 1, 2006
Bit of a disconnect here. If you force it on them, without their input, your reply makes sense. But I suggested you ASK your 20 year employees if THEY would like to proceed and only changing it back if THEY want you to. You are only attempting to take an action in which THEY are the primary beneficiary.

I'm thinking it is just a software option with your existing equipment. If you need an expensive upgrade to the terminals, that changes the parameters of the issue. But only you know that.

You clearly know your staff and customer base better than I do. I view it as an option to the customer. I like offering choices to customers, especially if it doesn't add any significant expenses.

Keep the toaster, add the option.

Good Luck!
 
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Joined Aug 9, 2018
If you want to consider an academic perspective this is an interesting read.



Read the entire article here:

https://www.theglobeandmail.com/glo...y-of-the-automatic-tip-option/article4097563/
Interesting read. I did talk with my accountant today about the taxation responsibility of the restaurant owner concerning tips on the debit machine. I thought perhaps if the restaurant was audited it would be expected that the owner would take off the standard deductions from tips before giving them to the staff. He said no...it is up to the staff person to declare it if they decided to do so. SO the staff would benefit a lot more from the tip option than me raising prices to give them an increase on their paycheck which would be taxed up front.
 
22
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Joined Aug 9, 2018
Bit of a disconnect here. If you force it on them, without their input, your reply makes sense. But I suggested you ASK your 20 year employees if THEY would like to proceed and only changing it back if THEY want you to. You are only attempting to take an action in which THEY are the primary beneficiary.

I'm thinking it is just a software option with your existing equipment. If you need an expensive upgrade to the terminals, that changes the parameters of the issue. But only you know that.

You clearly know your staff and customer base better than I do. I view it as an option to the customer. I like offering choices to customers, especially if it doesn't add any significant expenses.

Keep the toaster, add the option.

Good Luck!
For sure the staff would be thrilled if we added the tip option.
 
109
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Joined Apr 11, 2018
Another aspect that may impact your decision is that cash tips are tax free and having the paper trail creates taxable income for tip recipients. I always leave $0 tip on restaurant credit card payments and leave cash tips. Unless the Gov. changed the rules I will continue to do this to the benefit of my servers.

If you're talking in the United States then it doesn't really work like that anymore, last I saw. Of course by law waiters must declare and pay taxes on all their tips, cash and credit. They must also keep their own records of actual tips collected. That's nothing new.

But it used to be common to not actually declare all of their cash tips to avoid taxes like in the situation you're describing. Instead they would only declare a certain percentage of their sales under the false belief that declaring that minimum threshold would make them safe from being audited. And few kept records. I mean, these are waiters, not accountants.

However, once the use of credit/debit payments became so much more prevalent, the IRS figured out a way to catch more undeclared tips. What they started doing was looking at the average tip % from credit card sales and compare that to the tip % of total tips declared. If total tips declared % (cash and credit sales combined) was lower, it meant they weren't declaring all their cash tips and it was audit time.

For example, Johnny's total tips declared was only at 10% of his total sales. But looking at his credit card tips, he was making a nice average 18% tip as documented in the transactions. So his cash tippers were that much cheaper? Yeah, right. And the IRS came knocking.

Then, since they didn't keep any records, they had no evidence to fight the audit and ended up paying penalties. Before I left the industry it was becoming a little too often where a former or current waiter came to us getting audited by the IRS and asking for us to give them past years of their tip records. Sorry dude, we don't keep that info, you were supposed to do that.

But maybe I'm out of date - perhaps credit card payments make such a large majority of the percentage of payments these days that fudging on tip reporting from the rare cash sale doesn't have a big enough impact to raise a flag. Either way it'd be nice if the IRS stopped picking on waiters.
 
814
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Joined May 25, 2015
From the article:
I looked up taxation of tips on the Canada Revenue Agency's website and it confirmed that tips given voluntarily are not taxable, but mandatory service charges are subject to the taxman's fingers.
 
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