– By Carlo Zampogna, Co-Founder, Gratuity Solutions
Believe it or not, the majority of businesses in the service industry still use manual calculations at some point during the accounting and payment processes. Even establishments bringing in millions of dollars in tips alone often rely on a human to crunch at least some of those numbers. The complexity of calculating wages, tips, commissions, and service charges combined with the tendency for humans to make mistakes leaves these businesses open to all sorts of accounting errors.
Thankfully, there is a clear and simple solution to these problems that brings outdated business models into the modern age. Based on the overwhelming successes of businesses who have chosen to adopt automation technology, it is apparent that automated digital payment and disbursement platforms are the answer to questions many businesses didn’t even know they had.
Here’s how such a software platform works for payment automation.
By using automation and custom-built APIs, cloud-based Pay-Data solutions can integrate seamlessly with each client’s existing POS and payroll systems. Once connected, the software collects and interprets information on employee attendance and hours worked, new hires and terminations, employee transfers, pay rates, tips, service charges, and all sales data, whether recorded locally or in a separate application.
Employees can receive automatic daily pay and tips, with accurate and government-compliant tax and healthcare contributions withheld, via pay cards or connected bank accounts. From there, the system preserves all data and transactions for accurate and extensive record-keeping purposes.
In essence, money can flow from the customer to the business and then into the pockets of that business’s employees without ever needing a human being to lift a finger to make it happen.
Though it sounds complex, a single establishment could be up and running with either standard or customized calculations in under an hour and be paying out employees by shift’s end. In fact, over 570 major chain locations were able to implement full-service software solutions in a single day.
The time to adopt an automated digital payment solution is now, and with the power of remote installations and cloud-based operations, ‘now’ can almost literally be instantaneous.
Digital payment platforms solve problems for large and small businesses anywhere in the world.
The following points represent the proven accomplishments of digital payment software solutions as described by sponsored research and real client results.
Improving employee retention
The National Restaurant Association’s Restaurant Industry 2030 report anticipates slower than usual growth in the labor force. This means higher demand for skilled talent and therefore stiffer competition among restaurants to recruit and retain that talent and keep turnover rates low.
While raising wages or boosting employee benefits packages isn’t always feasible, there’s one extremely underutilized way to incentivize restaurant staff to stay on board.
Same-Day Pay gives employees the ability to take home each day’s pay at the end of every shift, closing the gap between paychecks and helping greatly with financial planning.
If one local restaurant offers daily pay and another pays every two weeks, the vast majority of workers would opt to work for the former if all else is similar.
Eliminating wasted labor hours
Totaling up the hours worked and wage rates for each employee in a large establishment is a challenge enough on its own. Add in the calculations for tips and gratuities (especially when some tips are split among the team and others are not), service charges, commissions, bonuses, and any tax and healthcare withholdings, and the headaches only compound.
Managers, bartenders, and servers spend between 3,100 and 7,650 labor hours per year, for every location, doing these calculations, filling out forms manually, fixing errors, and keeping accurate records. Combine these unnecessary labor hours with all of the potential work that could be done instead if these processes were automatic and instantaneous, and the loss of potential revenue for each restaurant location is far higher than anyone might expect.
Depending on wages, this loss could total into the thousands of dollars per employee, per location, every single year. Large chains may lose millions annually simply by paying employees to manually perform tasks that could more easily and accurately be completed with Pay-Data software. If each employee instead devoted that time to other valuable tasks instead of crunching numbers and double-checking spreadsheets, the result would almost certainly be a better customer experience and higher employee satisfaction.
A client-reported study found a return on investment of 6.5 times with a net gain of $1.7 million over 220 locations when compared to the costs of continuing to perform all of these tasks manually.
Simplifying tax and healthcare compliance
Federal and state regulations on tax brackets and healthcare contributions change on a nearly constant basis. In industries where cash payments and tips complicate matters, employee health and wellbeing may literally rely on the accuracy of withholding and reporting practices.
Based on an establishment’s location and individual considerations, the formula for withheld amounts can be customized for effortless and automatic compliance.
Avoiding lawsuits over miscalculations and other mistakes
Even the largest and most successful organizations are not immune to the pitfalls of human error. In fact, the larger the organization, the higher the probability that errors will eventually slip through the cracks of complicated calculations, government classifications, and record-keeping.
For an unfortunate example, consider DoorDash. Recently, DoorDash faced a $5 million class-action lawsuit where they were forced to pay for the error of misclassifying independent contractors. In addition to this lawsuit, they also faced litigation over allegations of keeping tips from delivery drivers.
Any business could avoid inconvenient and expensive legal repercussions by employing a clear, transparent, and error-free method of calculating payments based on employee status, disbursing tips, and keeping thorough records.
Keeping extensive and accurate records
Business owners should ask themselves:
- How far back do our records extend?
- What system determines which records are kept and which are not?
- How are these records organized?
- Are there any outstanding issues that need to be resolved?
- If an incident happened and we needed to access a specific transaction record, would we be able to easily find it among the rest?
Automatic filing of digital records allows business owners to answer all of these questions with ease. Each transaction is stored away for a designated time period, categorized, and preserved in case it is needed in the future.
Handling minimum wage increases
Recently, Florida became the eighth and latest state to increase their minimum wage to $15 per hour, or $11.98 per hour for workers who receive tips. The increase will be gradual, taking place in steps, and reaching full effect by September of 2026.
Considering seven other states had already made this move, it stands to reason that more will surely follow. Part of a successful establishment’s strategy is anticipating changes that will affect them in the future. Even if a business operates outside of one of those eight states, planning for an eventual minimum wage hike would be wise.
The general response to minimum wage increases for restaurants and other hospitality establishments who operate in that pay bracket is one of anxiety. When margins are thin, trying to come up with extra cash to meet higher pay guidelines can make owners and managers feel like they are magicians trying to pull money out of a hat. Facing such a change abruptly and without a solid plan often results in at least some negative repercussions, usually in the form of layoffs or reduced hours for employees.
Thankfully, there is a much better way to keep costs manageable without having to lay off workers or decrease hours.
Charging an extra percentage for services such as food delivery and accommodations for large parties can help offset the expense of higher wages for staff. While tips can only be distributed to customer-facing workers such as wait staff, bussers, and bartenders, service charges can be split among the whole restaurant team. Therefore, the extra revenue gained from using service charges funnels directly into the higher wages as non-tip income and can be reported as such to the IRS.
Better still, this whole process can be done for you by the right software with a one-time setup of your custom service charge calculations.
Helping employees make ends meet
A staggering 78% of Americans live paycheck to paycheck, according to Career Builder. Food service, hospitality, and retail workers are the most likely to fall into this category, especially after the COVID-19 pandemic caused so many shutdowns and resulted in job losses and hour reductions.
“I’d pay you more if I could,” is the sentiment that rings hollowly in the ears of many who have asked bosses for a little extra financial help.
But what if companies could make a difference to these workers without putting a dent in revenue while they climb back to full operations?
Same-Day Pay, implemented through the automated loading of pay cards or transfers to bank accounts after every shift, is the solution.
Though daily or expedited pay doesn’t put a higher amount into workers’ pockets, it does give them their hard-earned wages more quickly. In terms of paying bills on time and avoiding costly overdraft fees or payday loan interest, this instant access to funds makes a world of difference.
Workers could clock out at 6pm and have the funds to put dinner on the table instantly, with no extra effort or red tape involved.
Future-proofing and pandemic-proofing businesses with contactless digital transactions
In a world where masks and hand sanitizers are a vital component of shopping and dining out, customers clamor for contactless, safe ways to pay vendors without the risk of germs.
Even at the beginning of the pandemic in April of 2020, Mastercard reported that nearly 80% of study respondents reached for a contactless method of payment during checkouts.
As a result of most customer payments going digital, tips have also become a mostly digital phenomenon. Workers who once took home cash tips every day now must wait two weeks for their regularly scheduled paychecks. Workers who still take home cash tips worry about handling money that may have been exposed to contagions.
These, too, are problems easily solved with contactless digital daily payments handled by automated software.
No matter the situation, a digital calculation and payment platform streamlines operations and fills in financial gaps.
Cloud-based Pay-Data solutions will be an integral part of business operations in the future. It’s not a matter of if it will happen, but when. Companies that jump on board early will ride the wave to success, assured that their business operations are as future-proof and efficient as possible.