Gratuities are a tradition in the service industry. Let’s not get into the history and relevance of tipping. Instead, let us look at how it impacts businesses today.
The size and location of the venue can have a significant impact on the value of tips. We see around 2-3% of the revenue at cafes that offer table service and about 5% at bars and restaurants in the evening.
This is not the same as what you’d see in North America, but it’s still not that much. Full-time wait staff have earned more than $15,000. It’s not hard to believe that Australia has the highest minimum hourly rate for hospitality workers anywhere in the world.
These extra charges pass through your business to the business owner. It’s not your money, but it is your responsibility. This can be a real minefield.
What could possibly go wrong when you combine all of these elements, including cash, sharing, and entitlement?!
Tips are Here To Stay
Many stories of airline announcements tell passengers not to tip in Australia.
Despite the tired and repetitive opinion that it is declining, we all know it is not. It is a common practice in many venues. It can cause problems for business owners if it is combined with another macro trend (see the next).
The Contactless Revolution
Cash payments have been widely predicted for many years. Here are some reasons why they could fall off the cliff.
- Apple Pay and Google Pay have finally sorted the dispute with the major AU banks.
- You can now replace your Sydney and Melbourne Travel Cards with NFC or physical bank cards with full travel discounts.
- You will soon be able to obtain a digital driver’s license in NSW in the next few months.
All of this could mean that you no longer need to carry a wallet or any cash at all for a growing number of early adopters.
Bars and clubs were easy targets for armed robberies 15 years ago when I managed venues in Liverpool. My day consisted mainly of counting safe floats and taking trips to the bank. Many other managers will not be disappointed to see large cash amounts in venues.
However, there are downsides to this system. For example, you will be charged more merchant fees for every transaction. This means that you pay a small percentage to receive tips for your team. This can be offset by automated surcharging from merchant providers. Tyro is home to some amazing systems. However, the details are best left for another post.
Also, make sure your POS system configuration is correct. This will ensure that tips don’t appear in your bookkeeping file as a sale and attract 10% GST on Income.
You Break It, You Pay!
But not so fast! It is common to believe that TV shows and movies portray this. However, it is illegal to withhold wages or tips from employees for damage or wastage. It’s a cost to the business. We believe it’s okay. Take it on the chin and address the need for more care.
Teams & Tronc
Splitting tips can be done in many different ways. We recommend that senior staff present several options and let them make their own decisions. It’s a good idea to keep the entire system at arm’s length and only intervene if necessary.
There are many options:
- All staff keep their tips. The staff then tip-out other members of the team who have helped them (e.g. They tip-out other team members who helped them, i.e. kitchen staff, runners, etc. This is the most common model in North America, but it can cause conflicts.
- All tips received by staff are pooled and divided at the end. Although it seems simple, sometimes there is not enough cash to pay EFTPOS tips. However, employees can take on additional jobs for each day and service period. Do employees have to do the calculations, count and split tips, or work from home?
- All tips received by staff are gathered and divided by how many hours or shifts they worked. This will help reduce the problems caused by staff who work longer hours. As the business handles tips throughout the week, you need to be transparent. You can also give admin back to your business for distribution.
Some larger venues also have a pool system called ‘Tronc’, which can prove controversial. Each staff member is assigned a point score or grade to determine their share of the pooled tips. Senior staff must pass a tips test to be eligible for any share. Often, more experienced staff receive more points.
Sometimes, managers are awarded more points than they receive in competitive hourly rates and salaries.
We have created a tip splitting calculator for businesses that choose one of these options. This Calculator can be used to divide your tips and service fees between your team. This Calculator can be used daily, weekly, or based on your role and experience.
Enter your email address to receive a copy via email.
Unexpected Tax Surprises
It’s a smart idea to educate and counsel your team about their tax obligations. You will feel a little bit better when you have a few beer tokens in your pocket after each shift. There is a good chance that ATO will soon be knocking. They can also choose to look backwards for as long as 7 years.
Single Touch Payroll (STP), a new system that gives ATO data in real-time, allows for the creation of single touch payrolls. This system already provides immediate Superannuation and PAYG figures and records employee earnings.
They are now able to apply machine learning and data matching to this data. This will allow the ATO to understand better which employees should declare gratuities as an additional income.
Are you concerned that 30% of your employees are saving their tips for the EOFY tax return!
The Cafe Bookkeepers’ Solution
We have developed a system that distributes tips and service charges through weekly payroll runs together with our payroll clients. This is a non-taxed reimbursement that appears on employees’ payslips. It means that tips are received in every payroll period.
It is important to state that no tax was withheld clearly. Your bookkeeper will then apply the reimbursement amount against your income at the end of each reporting period.
Additional benefits include:
- Weekly Declaration clarifies that EFTPOS receipts do not constitute revenue and that you should not be paying 10% GST.
- Cash can be kept in the business to pay for expenses or save a reasonable amount. This will help you to stay within ATO business benchmarks.
- All staff can see the tipping system openly and transparently.
- To ensure that they don’t owe any unexpected tax, staff keep a log of all tips.
Like many industries, there are always new challenges and changes. We would love to hear about your tips and experiences.