The service industry has a long and continuing tradition of receiving gratuities. Without getting involved in the history or relevance of tipping, let's look at how it affects businesses today.

The value of tips received varies a great deal by the size of the venue and location. Over a given week, we tend to see tips around 2-3% of revenue for cafes with table service and around 5% at restaurants & bars in the evening

It's nothing like the sums you would see in North America but also not chump-change. We have witnessed full-time wait-staff with an annual tips income of over $15,000. Not bad when you consider that the minimum hourly rates for hospitality workers in Australia are the highest in the world.

For the business owner, these extra service charges are passing through your business. While it's not your cash, it is your responsibility, and it can become a bit of a minefield.

When you put it all together, cash, sharing and entitlement, what could possibly go wrong?!

Tips are here to stay

Stories abound of airline announcements telling passengers tipping is not required in Australia.

We all know that in most venues, it is the norm, and despite the regular tired opinion piece that it is on the decline, it really isn’t. When intersected with another macro trend (see next), it could pose issues for business owners.

The Contactless Revolution

Widely predicted for several years now, cash payments could be about to fall off a cliff for a few reasons.

• Apple Pay and Google Pay have finally sorted out the argument with the big AU banks.

• Sydney & Melbourne Travel cards can now be replaced with bank cards (physical or NFC on your phone) with full travel discounts.

• In the coming months in, you will be able to carry a digital drivers licence in NSW.

This could all mean the end of carrying a wallet and zero cash in the pockets of a growing number of early adopters.

About 15 years ago, when managing venues in Liverpool, bars and clubs were soft targets for armed robberies. Much of my day was spent counting till and safe floats and making trips to the bank. I'm sure many other managers won't be sorry to see the back of large amounts of cash in venues.

There are some downsides, notably increased merchant fees of every transaction. This meaning you are paying a small percentage to collect tips for your team. Some of this can be offset with by some merchant providers automated surcharging. Tyro has some great systems, but the detail on that is probably best saved for a future post.

Another consideration is to make sure that your POS system is correctly configured. This is so that tips do not enter your bookkeeping file appearing as a sale and attracting 10% GST on Income.

You break it, you pay!

Not so fast! This is a common misconception from movies and TV, but it is unlawful to withhold wages or tips from staff, for breakages or wastage. Our opinion is that it's a cost of business, take it on the chin, address the process for taking more care and move on.

Teams & Tronc

There are many ways to split tips in a venue, we recommend gathering senior staff to present some options, and then let them choose. From there-on-in, it's not a bad idea to keep the whole system at arm's length, only intervening if required.

Some options could be:

• All staff simply keep their own tips. They then 'tip-out' other team members who helped them, i.e. kitchen staff and runners etc. This is the typical model used in North America but can lead to conflicts.

• Staff pool all tips for the service shift and split equally at the end. It seems easy enough, but some times there may not be enough cash to cover EFTPOS tips, while an extra job for each day or service period. Should it be the employees own time or should someone be on the clock to count, calculate and divide up tips?

• Staff pool all tips for the week and divide by the number of shifts or hours worked. This can help reduce problems where some staff work busier shifts than others. You need to ensure total transparency as the business looks after the tips during the week. Also places some admin back to the business to distribute.

Additionally, some larger venues operate a pool or 'Tronc' system, which can be controversial. Staff are awarded a points score or grade, which will dictate their part of the pooled tips. Often more experienced staff get more points with junior staff required to pass a 'tips test' to qualify for any share.

In some cases, businesses award managers more points instead of paying competitive hourly rates or salaries.

If either of the latter options is a fit for your business, we have created a free tip splitting calculator. You can use this Calculator to split your tips or service charges between your team. You could use this daily or over a week, and you can cut by hours or divide points based on role and experience.

Then enter your email address to send a copy by email for safekeeping.

You can find it here https://cafebookkeepers.com.au/staff-tips-calculator

Note: despite the level of detail in the complex modern awards, there is no regulation in Australia around tipping. The Long read, research on tipping in Australia here: https://ro.uow.edu.au/cgi/viewcontent.cgi

Nasty Tax Surprises

It is a good idea to counsel and educate your team on their tax obligations. There is no doubt that a few “beer tokens“ are nice feeling in your pocket at the end of the shift. Unfortunately, there is every chance that one day soon that ATO will come knocking, and they can choose to cast an eye backwards for up to 7 years.

The new Single Touch Payroll (STP) system gives the ATO data in realtime each pay run. This already gives immediate PAYG & Superannuation figures and is recording employee earnings too.

With this data, they are starting to use sophisticated data matching and machine learning. This will give the ATO a good idea of employees who should be declaring gratuities as extra income.

Do you think many of your staff are putting 30% of their tips aside for their EOFY tax return?!

The Cafe Bookkeepers Solution

Together with some of our payroll clients, we come up with a system to distribute tips and service charge through the weekly pay run. This appears on employee payslips as a non-taxed 'reimbursement' and means that their tips are received in each payroll period.

It is vital to make it very clear that no tax has been withheld. At the end of each reporting period, your bookkeeper then takes the reimbursement total and applies it against your income.

Other benefits include:

• Weekly Declaration makes it clear that the EFTPOS receipts are not revenue and you shouldn't be paying 10% GST on them.

• You can keep cash in the business for other expenses or at least to bank a decent amount, helping to keep you within ATO business benchmarks.

• The tipping system is open and transparent for all staff to see.

• Staff have a record of their tips to ensure they don't owe anything unexpected in tax.

As with many areas of the industry, change and new challenges come thick and fast. Let us know in the comments of your experiences tips for tips.

Chat to us today about your managing your payroll on 02 8520 2146 or email us at hello@cafebookkeepers.com.au

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