Difference between Cash Tips and Credit Card Tips

Difference between Cash Tips and Credit Card Tips

Deskera Content Team
Deskera Content Team
Table of Contents
Table of Contents

Shopping always seems ecstatic and so does the purchase of new things, While we all want to adore new clothes or even decorate our space with stylish furniture, which payment method to use becomes a confusion often. With mobile wallets and QR code scanners taking the center stage in almost every country and industry, giving tips seems a major issue for those who have a big heart. This leads to confusion often; which is better among cash tips and credit card tips?

Even though cash tips are becoming less prominent in today’s world, it is still considered as the primary method for a tip credit in restaurants, bars, salons and spas. While there can be cash tips and credit card tips, understanding how these different tip methods affect the employees and hence, the business is also equally important.

In this blog, we are going to read about -

Why tips can be confusing?

Tips are the customer’s way of appreciating a service. If a customer gives cash tips and credit card tips to a service provider in a hotel, gym or any other place, the employer needs to keep a track of the tips received by different employees. There are certain advantages and disadvantages of both the methods, cash tips and credit card tips but in the end, all businesses graciously accept them as something extra in their income.

To avoid confusion, the employer must know how to handle both these tip methods effectively. It seems confusing as there are some similarities and differences in both methods which can boggle the mind of an entrepreneur or small business owner who has just entered the domain.

What is a tip management system?

To ensure all the employees receive a fair and equal distribution of the tips, an employer must have a tip management system at his service. The cash tips and credit card tips make it difficult for an employer to manage the tips irrespective of the tip method used at the centre. As a result, most employees have a feeling of improper tip distribution. Hence, most restaurants in the US use a tip management system for an equal share of tips amongst the employees.

The tip management system is an essential feature in the various hotels and other public services as the service staff often get gratuities from the customers. Hence, the business owners make this gratuity optional for the customers and give the option on the amount to be paid in the form of tips. The employers in America who provide services are seen to be making use of the ACID POS system with 4 preset values of tips.

It also provides the order total and tips separately at public services before the customer transacts and approves the amount. Its printed receipts give full detail of the sales - this includes information related to tips and how the total bill amount was calculated. This is a useful system for even the small business owner even if he is not accepting tips. The system can help the business grow and offers scalability for current and future needs.

Why a tip management system is necessary?

A major issue the employers face with cash tips and credit card tips is its accurate collection and reporting. A small business owner might find it extremely tough to keep proper records at the initial time. At such times, using a high-quality POS system ensures that all the employees can have easy access to report the received tips in a quick way. This system is found to be useful for both cash tips and credit card tips. It can also be used to report the tips received through debit cards.

The use of a high-quality system ensures correct reporting of cash tips and credit card tips. It also gives the employees quick access to the reports of the received tips. This easy to read the report can be checked by the employees at any time. If the employer fails to report the tips received by the employees as extra wages, it can even lead to hefty IRS penalties.

How to tip with a credit card?

Giving cash tips and credit card tips can be confusing for an individual who is handling them for the first time. When you are going to give tips with a credit card, you should do the following steps -

  1. Ask for the final bill - Ask for a generated bill from the serviceman for his provided services.
  2. Check the pre-tax amount to understand the tip amount: You should then check for the amount before taxes are applied on the bill. Usually, for a restaurant in the US, the recognized tip amount for the food is said to be about 15% - 20% of the pre-tax bill.
  3. Calculate your tip amount: Once you have mentally calculated the tipping amount for the service, you need to write down the tip amount on the receipt named customer copy for your records. The other merchant copy is usually kept by the small business owner.
  4. Include the tipping amount to your bill - At the end, include your credit card tip amount next to the line where the total amount is mentioned. Write your full name and do the signature. Only after you have done all this, it will be charged.
  5. Keep a note of the total amount: For further reference to your transaction records, it is always a good idea to keep a record of the tips done with transactions so you are not charged extra for the services.

When to Provide Tips in CASH?

Tipping in cash

Giving tips is a good sign of your gratefulness towards the service provider. It shows your willingness to help them. If you want to rely on cash tips only for these services provided by the employees of the centre, you must have a fair idea about when to use the cash tips and credit card tips. A US citizen is expected to give cash tips at the following places -

Restaurants and Dine out

If you are someone who is fond of trying multiple food joints at your location, you should certainly carry some handy cash to provide tips to the hotel staff. According to a report by The Salty Waitress, most entrepreneurs engaged in the hotel business prefer tips payment by cash. The employees shall get the tips right away and it gives some tax benefits for the employer. Restaurants and bars set out the usual tip jars for customers, but this may also appear with the most creative alternatives to get the tips going for their business.

Complimentary services

It is expected that an American national should offer cash tips for the complimentary services he has received from cab drivers, valet parking, restaurant waiters etc. The amount can be anything between 1$ - 3$ for a bag and 2$ to 5$ for car parking or other services at the restaurant. Not giving it can earn you a bad name among the service provider’s customers.

Salons

Some employers offering salon services to give the latest trendy and fashionable look may not accept credit card tips. At such establishments, the employees must be rewarded with suitable tips in cash only.

Coffee shops

Employees at coffee shops, baristas, snacks and even bakery items providers expect a little amount from the customers to support their minimum wage.

Food delivery services

The food delivery services have made it easier for people to enjoy their favourite snacks at home. Popular food delivery services are now available at your fingertips through applications. The customers should plan cash tips between 3$ to 5$ for these service providers.

Spas

It always feels good to rejuvenate after a tiring week. Moisturizing and soothing your skin at beauty centers and massage at the spa can provide you with much-needed relief. Always, remember to recognize their services with appropriate cash tips.

Any service which involved cash transactions

It is imperative in the US to tip the service providers for even the smallest of services. This can include the lawn care service providers, house painters and even the cleaners. So, it's always wise to keep a certain amount of cash tips at your apartment in case of unplanned services from them.


Services with prior cash payment

If you have ordered anything online and expect the product’s delivery at your doorstep, you should always have cash tips as these movers give the delivery of packaged boxes by going the extra mile of their job.

Cash Tips vs Credit Card Tips

If you are still in a confusion about cash tips and credit card tips, let us make it more clear to you. While the cash tips can be directly deposited in the jar kept by the small business owner at the service place, the tips handed via credit cards take a long time to process. These are usually handled by the employers to the employees at the time of paystub. Moreover, the receipts need to be saved by the business owner for a period of a minimum of 18 months and they must be entered accurately via POS machine to avoid entry errors and later confusion.

The only drawback of the cash tips is it is more difficult to keep an accurate track of them as the employees might pocket them directly. It means the employer might not get accurate details of the tips received. Therefore, the employer must make use of payment processing software to keep a correct record of the transactions and tips received in the business.

Conclusion

The US citizens and even the visitors are expected to deposit either cash tips or credit card tips for any of the services they have received from the small business owners and other service providers. Deskera is an excellent one-stop solution to keep an accurate record of the payments and even helps to maintain a correct salary slip. Our other business blogs can prove to be useful for increasing your business.

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Key Takeaways

  1. A customer is respected by the employer when he leaves some tips for the employees. A small business owner in the US accepts both cash tips and credit card tips.
  2. These tips are usually distributed by the business owner equally amongst the workers during their monthly paystub. Usually, the business owner collects cash tips directly by placing a jar at the counter of the service place - hotel, restaurant, coffee cafe, spas etc.
  3. Tips are also collected by employees who provide services related to door-step delivery, waiters in the hotel for room service, valet parking, laundry and other duties. It should also be given for complimentary services and even if you have employed individuals for apartment cleaning, lawnmowers, spa services etc.
  4. The employer must use accurate software for proper management of the tips received and their distribution. The software even generates accurate reports of the cash tips and credit card tips for accurate entries. This can be useful during tax filing.
  5. The employer needs to maintain the bill receipts for tips collected via credit card for 18 months as the IRS officer can request them at any time. Loss of accurate reports of tips received by the employees can lead to heavy punishments.
  6. The ACID POS system lets the customer choose how many tips he wants to provide to the employer. The transaction is successful only after the customer confirms the tip amount. On credit card tips, the customer needs to sign and mention his name on the receipt for completion of the transaction and mention the tipping amount on the bill for the ease of the employers
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