How an Automatic Payment System for Tipping Benefits Restaurant Customers, Owners and Staff

Dealing with tipping within the automatic payment system increases the speed of the transaction and removes additional touch points between the server or cashier and the customer, something more people are considering after the pandemic.
By Steve Gasperini, Vice president, Solution Sales at FreedomPay - 8.11.2021

Attracting and retaining staff in hospitality is not easy in the current climate, with around 500,000 jobs lost in the US during the pandemic unlikely to return by the end of the year, according to the American Hotel and Lodging Association. But there are a number of things that restaurants and other hospitality businesses can do to turn this around.

Many of those working in hospitality were disproportionately affected when these sectors closed completely for a time, meaning staff who were unable to work in their chosen field had to find work elsewhere. Thanks to changing work patterns, including an increase in the number of companies allowing staff to work from home, the appeal of hospitality has waned, making it harder to get and retain staff.

One of the key ways to do this is by increasing staff wages. The new proposed minimum wage of $15 an hour is higher than the typical cashier wage of around $10 per hour, but given the need to attract and retain staff, many restaurants and hotels are facing higher demands, closer to around $20 per hour. The question for most employers in the hospitality industry is how can they meet this demand?

Raising prices to increase wages is perhaps the first thought, but the knock-on effect is that customers will be asked to pay higher prices to cover the extra expense. If prices rise too much, it could result in lower sales, presenting no solution at all.

So, a sensible way to increase takings without directly increasing prices is by offering customers the option of choosing to pay a tip on their transaction directly at the point-of-sale (PoS), including via contactless payment. By putting a choice of tip level in the payment system, not only gives customers the chance to add a tip whether they are dealing with a cashier at a quick service restaurant, might also remind them that it is somewhat expected.

However, the level of tip on each button needs to be carefully considered. For example, if staff are used to receiving 20% as a tip for example – partly because that is relatively simple to work out based on the value of a meal or other service – then starting your tip options at 15% could result in staff seeing their take-home pay falling as customers choose the lowest option. However, by choosing to start tips at 20%, then perhaps offering a 22% and 25% option, staff could see their take-home pay stay the same, or hopefully increase.

The inclination for customers to pay a tip is higher if it is included as part of their overall transaction. They will probably not want to lose face by choosing ‘no tip’, especially if they come to the establishment regularly. Also, they don’t have to find extra cash to cover the tip – a real benefit in a time when most people are paying for our goods and services electronically and, increasingly, via contactless methods.

Additionally, it gives restaurant owners the freedom to analyze additional data garnered from these transactions, such as what people are buying and when, helping them optimize business purchasing and can provide offers and discounts to encourage customers to return. They can also assess the typical level of tip paid and how many customers choose not to tip at all, allowing them to refine the options to maximize takings.

How restaurant operators choose to split the tips paid is entirely up to them. Many will spread them throughout the organization, especially as some of the back-room staff who have no customer-facing role would get no benefit from tips otherwise.

Dealing with tipping within the automatic payment system increases the speed of the transaction and removes additional touch points between the server or cashier and the customer, something more people are considering after the pandemic. In fact, there is also a tendency for people to be more likely to tip those in hospitality at present because of how much they will have lost during business closures. So, this is the perfect time to adopt this method as it will become ‘normal’ over time.

Increasing the transaction speed by removing the need to fumble for notes and coins has a second benefit, as it means more transactions can completed in the same time. So, let’s say the average transaction level is $40. If you can put a further four transactions through each day, then that adds $160 per day to the bottom line. Add that up over 30 days and the figure reaches $4,800 of extra revenue per month, or $57,600 over a year. That should be enough to increase staff wages to encourage people back into the business and to keep them happy once they are there.

There are many benefits to offering customers the option to tip via your PoS system – increasing transaction speed, encouraging customers to tip more than they might otherwise and also helping to keep staff happy with higher wages. Given the current difficulties in getting staff back into hospitality roles, hotel and other venue owners need to use every available asset to get their business back to profitability.

Steve Gasperini has been in the hospitality technology space for the past 35+ years. Prior to his tenure at FreedomPay, Steve enjoyed and long career with Oracle/ MICROS in a variety of sales and sales management roles. His current role at FreedomPay, VP, Solution Sales, affords him the opportunity to leverage his extensive hospitality background, in order to provide a consultative approach to both existing FreedomPay clients, as well as those that are seeking cutting edge payment solutions, now and into the future.

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