How businesses can save money on gratuity transaction fees

Credit card fees on gratuities add up quickly. Let's make a quick estimate:

We'll assume that your employees are tipped a combined total of just $100 per day, 250 days per year (i.e., weekdays minus stat holidays).

We'll assume transaction fees are 2.5 %.

The total cost of transaction fees is then

100 × 250 × 2.5/100 = $625

per year.

You can easily substitute your own numbers!

$625 per year may not sound a lot, but a restaurant with multiple staff could easily pay ten times this figure — thousands of dollars — in card fees on gratuities each year.

The problems with card fees on gratuities

Let's be clear, ultimately these costs are borne by customers; that's true of all business costs. The transaction fees that will be incurred on gratuities are, on average, built into the prices of whatever customers are buying. Still, there are various problems:

• Customers who can't afford to tip, or who choose not to tip, are effectively subsidising those customers who pay generous tips.
• The cost to the business fluctuates based on how 'successful' staff are, time of year, and so on.
• Prices charged to customers must be higher to guarantee gratuity costs can be covered.

Building the cost of gratuities into prices really matters in businesses where price is an important differentiator. Your prices can be lower, and more competitive, if you don't have to factor in gratuity costs. It's also a challenge for new businesses setting prices for the first time as they need to guess in advance how many tips are going to be paid.

Is there a better way?

There's certainly a different way! Whether or not it's better depends on specifics and your point of view. The alternative approach is a cashless tipping platform.

Advantages

• Card fees can be paid by the customer who pays the gratuity.
• Business costs are independent of the number of gratuities paid.

Disadvantages

• Card-not-present payments incur higher card fees than card-present payments.
• Customers may baulk at paying card fees (even though they already pay them one way or another!).
• Cashless tipping platforms themselves cost money.

If you're looking to save money, this last point is important.

Unscrupulous cashless tipping providers take money from the gratuity itself. Whilst this is good for the business owner — they don't have to pay a penny — for the employees it sucks!

At tippl we strongly disapprove of taking money from the gratuity: it's fundamentally wrong. The employee has put in the hard work to earn the tip, not the platform.

Instead, we charge a subscription fee to the business. The subscription fee is low enough that net cost savings are still easy to achieve. The subscription fee is also predictable, so businesses can easily price it in.

Conclusion

Cashless tipping platforms can save businesses the expense of paying credit card transaction fees on gratuities. It might even be possible to save on EI and CPP contributions. We discuss that topic separately here.

Tippl. Cashless tipping, made simple.

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