Payment Methods

Taking The Cash Out Of Cashing Out Tips

Even-tips-are-going-instant

You may have noticed in recent years that the cash you have in your wallet, pocket or purse tends to last longer than it used to. Drew Edwards, CEO at Ingo Money, sure has — a situation he says was brought about by the increasing use of Uber instead of taxis, digital payment options offered by valets and other factors.

But there is one place where cash still has a big role: Tipping.

In a new PYMNTS interview, Karen Webster talked to Edwards about what it will take to move tipping away from a cash-based function. The conversation comes as pressure continues to build for not only faster payments of wages, tips and salaries, but disturbing those payments digitally, and in a method that appeals to a specific worker.

 

“A waiter is still expecting cash when he leaves the restaurant,” Edwards said. “Most consumers pay for meals without cash, using a card, including tips. That said, the government wants the tips in the payroll system, but the restaurant staff — including waiters and bartenders — still expect cash in hand from tips after every shift.”

Edwards added, “The pressure to pay out those earnings instantly can be intense, given how many workers in the service industry (like so many other U.S. consumers) are living paycheck to paycheck. But that cash poses risks — think of that waiter leaving the job at 2 a.m. with a bundle of bills. That makes a great target for thieves.”

Granted, some workers prefer cash, given that in the right situation, those tips can end up being unreported income. But cash also maintains its prime role in tipping because technology and business operations have yet to catch up. Sure, restaurants and bars have integrated their payroll and point-of-sale systems, but that doesn’t mean workers are benefiting digitally when it comes to tips.

“Tips have gone digital on the payor side, but not the payout side,” Edwards said.

Credit Uber with raising expectations about quick payout of wages and tips. “It started this momentum of paying out drivers every day if they wanted,” he said. But Uber is a product of the digital economy, and a company for which cash was never a factor. Restaurants are an older business model, of course. And legacy and inertia certainly are playing their part there. But Edwards expressed optimism that things will change when it comes to offering more instant payouts for those service industry workers. “I believe tips are next,” he said. “Beyond that, comes everyday payroll — all that has to be instant and electronic.”

You can bet that service industry workers are taking note of the relatively speed of payouts to Uber drivers and other gig workers. Indeed, it’s not hard to find service industry workers who also drive for rideshare companies or who have other gig economy jobs. They certainly know what’s going on, and know the benefits of getting paid earlier and instantly. That matters because, as Webster discussed with Edwards, it’s likely that more pressure for digitally-delivered tips for the service industry will have to come from those workers themselves.

Progress is happening, and not only in restaurants. As Edwards told it, hair and nail salons seem to be the next hot spot for this movement — many hair salons, in fact, don’t allow customers to put tips on payment cards but require them to pay cash. There are many other opportunities, too: How many of us neglect to tip doorman and valets because we forget to bring along enough cash? Edwards, in fact, told a story about how parking valets he often deals with send links to customers’ mobile phones that allow them to request their vehicles back, and to pay and tip those parking valets.

It will take more than technology to move tipping more firmly into the digital realm. Indeed, the issue of tipping is tied closely to the issue of how we tend to pay all types of workers. “This whole notion of getting paid every two weeks is burdensome to so many people who are living bill-to-bill,” Edwards said.

Remember to carry cash and tip well — you never know where the digital option might not be available. But also expect that more digital efficiencies are likely to come to tipping in the near future, with the benefits being felt among service industry workers.

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