How to Manage Tipping at Your Business: Tip Jars, Electronic Tipping, and Tipping Laws



Though many businesses have begun to eliminate tipping, there are still plenty of business types that encourage their customers to tip. The practice has particularly expanded among quick-service businesses. Some opt to put out a cash tip jar while others add tipping options electronically through their point of sale system.

Despite being a relatively simple part of any business operation, it’s important to set it up smartly. You want to respect your shoppers, but also to get your staff a little extra cash each shift.

Incorporate Electronic Tipping

Start by determining if you’ll provide an opportunity to tip through your POS. Some businesses have shied away from adding this as an option at the checkout because they believe it’s too strong of a suggestion. Yet, shoppers generally don’t seem to mind. Most consumers are used to receiving a prompt for leaving a tip at most QSR businesses.

Nonetheless, consider your business type and your typical guest. Is tipping appropriate for all services? Can you ask your customer to leave a tip prior to receiving their food or drinks? How much is a fair tip?

Set Options on Your POS

Most importantly, you should determine what options your customers will see on the POS screen at the checkout. Using a customer-facing desktop terminal or a tablet in combination with software that allows you to customize tip options will allow for a seamless payment process.

You’ll first need to decide if you’ll offer a percentage tip or specific dollar values as the tip options. Typically, businesses with a higher average ticket value will opt to offer percentage-based tip options. Businesses with lower average tickets, like coffee shops, are more likely to give customers a specific dollar amount as their tip option.

You want to encourage your shoppers to reward great service, but you don’t want to overwhelm them. It’s vital that no one feels coerced into tipping out of guilt. This can lead to frustration among even your most loyal customers and reduce your store’s retention rate.

Shop for the Right Point of Sale

Look for a POS solution that offers seamless tipping as well as back-end reporting for payroll. You not only want the process to be easy for the cashier and customer at the time of payment, but you also want the accounting aspects of it to be pain-free and accurate.

Track Cashier Tips with KORONA POS

KORONA POS comes with all the tools and features needed for running a business that accepts tips. Users can customize all customer and cashier screens to fit their needs. And they can do so on a variety of hardware devices, including powerful desktops with dual screens and smaller mobile tablets.

Use a Tip Jar, the Old-Fashioned Way

Still, a lot of businesses will opt to keep it classic with a simple tip jar set-up. And some opt for a combination of the two. But if you’re setting out a tip jar at your checkout area it’s important to do it right.

Remember, a tip jar should draw people’s attention without being too obnoxious. Like your electronic tipping option, you don’t want your customers to feel obligated to leave a tip. Instead, market it as a way that guests can show their appreciation for excellent service.

Pick Your Tip Jar

You can always stick with the classic tip jar, but there are some ways to get more creative and leave more of an impression on your guests.

Keep the container on-brand with a container related to what you sell. Coffee shops could use a coffee tin, burger joints a fry container, or wine bars a large decanter.

Some businesses also make tip jars more interactive by adding a spin to them. Coin drops, Plinko style, make leaving your spare change more fun and rewarding. 

Others decorate their jars to make them more festive and again to draw more attention. Get your staff in on the fun and let creative people get creative.

Tip battles are another fun way to drive more engagement. Set up dueling tip jars that customers can “vote” for by adding a dollar or two to. Make it fun and relevant to current events or pop culture.

Lastly, some tip jars take the funny route with pleas for beer money, college loan repayment, or some other cheeky label. Just make sure it stays funny and doesn’t become groveling.

See also: How To Pay Tips To Employees: A Tip Management Guide for SMBs

The Legality Behind Tipping

When implementing tipping at your business it’s vital that you do it legally and don’t subject your business to potential fines. 

Tips vs. Service Charges

There are some important distinctions between these two, mainly because one is voluntary and one is not. 

Tips must meet the following criteria:

  • Must be voluntarily given by the customer
  • The customer can determine the final amount 
  • The customer can determine who receives the payment

Service charges, on the other hand, are a bit different:

  • A fee for event service
  • Cleaning or maintenance charges
  • Automatic gratuity for large parties

Employee Tip Reporting

In most countries, employees are required to report all cash tips in their taxes. Typically, all tips on credit and debit cards are totaled by the business and then distributed on employee paychecks. These will automatically be reported through the business’s accounting system. 

Employer Tip Reporting

Employers also need to record all tips and report them to federal and state governments. Employers must withhold income taxes and FICA taxes on all tipped income. In some cases, this income is also subject to Social Security and Medicare taxes.

Include all employee tips on payroll tax forms and prepare to pay payroll taxes on all tipped income, too.

Taxable Income

Income through tips is taxable like any other income source. In the United States, any employee making more than $20 per month in tips must report them to the federal government. The business must collect these totals to report them on each employee’s W-2 tax form.

Service charges that are given to employees are also taxable just as regular wages are.

Tips on Cards

All tips on credit or debit cards must be allocated to the employees after each shift. Businesses can deduct credit card transaction fees from the tip if they choose.

Minimum Wage

Any employee must meet minimum wage requirements, which vary by state. And each state has unique laws when it comes to tipping. The federal requirement for the cash wage of tipped employees is $2.13 (as of 2021). 

This means that employees must be paid a minimum wage of $2.13 on top of any tips that they receive. All tips must then combine with the cash wage to meet at least the total federal minimum wage of $7.25. Should an employee not receive enough tips to meet the minimum wage, the employer is responsible for making up any difference.

Both minimum “cash wages” as well as total minimum wages vary by state and sometimes the city. Be sure to check with all local laws.

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About the Author

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Michael Chalberg

Michael has long focused his writing on the world of retail and small businesses. He''s been a part of the KORONA POS team since 2018 and loves helping entrepreneurs find ways to adapt and succeed. In his spare time, you'll likely find him hiking somewhere in the Southwest.