Choosing the best tip payout method for your staff is something that sounds simple, but is often more complicated than you might think. Whether you run a restaurant, salon, hotel, or any other business that accepts tips, there are many different factors to consider when choosing the best tip payout method for your staff.

For example: is it more efficient to deal with cash or go digital? How often do your employees want to be paid? And what state tipping regulations do you need to keep in mind?

With hospitality job growth trending upward, your staff has more options than ever when it comes to where they work. Recruiting and retaining the right talent comes down to finding the best way to pay tips—which means choosing a method that keeps you compliant with tipping regulations while also offering the most competitive payments experience possible to your staff.

Let’s unpack what state tipping regulations can tell us about the future of tip payouts—and how to find the best way to pay tips for your business.  

Tipping Regulations by State

Tip payout regulations are constantly evolving on both the federal and state level. Aside from keeping up to date with your state’s minimum wage and tipped minimum wage requirements (which you can find here), states also vary on their pay cadence laws, tip pooling regulations, and laws regarding final paychecks. Here’s a high-level overview of these regulations.

Pay cadence regulations

How frequently you tip out your staff isn’t entirely up to your preference; states have varying pay cadence regulations. 

While most states require employees to receive their tip payouts at least bi-weekly (as is the standard pay cadence for most salaried and hourly employees of regular wages), there are currently ten states where employers are required by law to pay employees their earnings—including tips—on a weekly basis. These include:

• California
• Connecticut
• Iowa
• Massachusetts
• Michigan
• New Hampshire
• New York
• Rhode Island
• Vermont
• Virginia

This means that, at minimum, employees in these states should be issued tips and other earnings once a week.

No matter where you live, it’s always an option to provide faster tip payouts than the bare minimum—but more on that in a moment.

Tip pooling regulations

Tip pooling is a common practice where employees combine their earned tips and distribute them among all staff members who provide customer service. This means that positions who might not always earn tips (like bussers or dishwashers, for example) then have the potential to do so. It can encourage teamwork and camaraderie—but different states have different tip pooling rules. For example, some states allow for mandatory tip pools while others have banned them, requiring that all eligible employees consent to tip pooling first. 

Here’s an overall primer on how tip pooling regulations vary from coast to coast—but it’s best to look up your specific state’s tip pooling laws to make sure you’re staying compliant. 

Finding a software or solution that can customize tip pooling to your specific needs can go a long way in simplifying and automating this process.

Last day pay regulations

Different states have different laws on how long you have to distribute an employees’ final paycheck; these laws often depend on whether or not the employee was fired or quit. For example, certain states, like California, require an employer to give any employee that is terminated their final paycheck the same day they are fired.

If you don’t comply with your state-specific final paycheck laws, you may be subject to penalties or fines. That’s why it’s so crucial to have the ability to push payments to employees instantly if needed. Not only can this be useful for issuing final paychecks, but also in sending stipends, bonuses, or any other one-off payments.

What Can Tipping Regulations Tell Us About the Future of Tip Payouts?

While each state has slightly different tipping regulations, there are some general trends we can take away from looking at them holistically. First, tip pooling customization is essential, and is a process that requires careful consideration of your organization’s specific rules and needs. Second, the ability to provide fast payouts can benefit workers and employers alike. Finally, as workers increasingly prefer workplaces that offer greater payments speed and flexibility, providing fast tip payout options can keep you compliant and promote talent retention.

Faster pay is the way of the future

With 65% of Americans living paycheck to paycheck, and economic pressures staying consistently high, people need and expect to be paid faster than the outdated bi-weekly paycycle. In fact, 76% of today’s workforce would prefer to be paid every day. Whether it’s wages, tips, or their final paycheck—state regulations are increasingly lining up with that demand, with many states requiring, or considering regulation to require, employers to pay tips and other earnings on a weekly basis. Especially in the hospitality industry, that expectation is even greater, with hospitality businesses understanding that in order to bring in top talent, they’ll need to create a competitive payments experience.

In order to truly be competitive in today’s hospitality market, it’s not enough to simply stay compliant and meet the bare minimum requirements. You have to understand where payments technology is headed—and why worker demand is so swiftly following suit.

Some of the most successful restaurant groups have recognized the power of instant, digital tip payouts in attracting—and retaining—the industry’s best staff. For example, Hop City Beer & Wine uses Branch to send same-day digital tip payouts to their staff. CJ Dimino, Director of Operations, noted that switching to same-day tips was essential in maintaining a competitive edge in a tight labor market. 

“We’re in one of those multi-use developments with restaurants, apartments, offices,” he said.
“Any employee could go two doors down and get another job instantly. So this solution had to be perfect.”

Not only did switching to Branch save his team management time each week, but it’s allowed him to keep employees engaged and satisfied. “It makes my job easier, it makes my manager’s jobs easier, and we keep a happy staff,” said Dimino.
Read the rest of their story here. 

Tip pooling requires customization

Secondly, tip pooling is a concept that has become popular in states that allow it—again, for that potential to foster a greater sense of teamwork and boost staff morale.

If you plan on offering tip pooling, however, it’s crucial to find an integration or software that can streamline this process and one that can be tailored to your company’s needs and your state’s specific tip pooling rules. This can automate the tip pooling process, leading to more efficient tip payouts. 

Psst: Branch and Gratuity Solutions work together to make same-day digital tip payouts + tip pooling a breeze, letting you create tip pooling settings and rules customized to your organization’s needs. Learn more here. 

Instant, digital tip payouts can benefit your business and your workforce  

Let’s face it: These days, hospitality businesses need to not only be considering how to find the best way to pay tips that keeps them compliant, but also the best way to pay tips that works for both their business and their staff. 

Many successful hospitality businesses are already switching to instant, digital payouts. Why? They deliver countless benefits for both your business and your workforce, such as:

• A clearer audit trail for payments. When you replace paper checks and cash, you no longer contend with an employee saying they didn’t receive their pay. It’s all digitally recorded in the system, and easy to pull up and verify or confirm. Minimize risk of fraud or theft by going digital. 
• No more bank runs, till reconciliation, or paper check issuing. No more hours lost—or additional costs—from handling outdated payment methods and issuing paper checks. 
• A strong competitive advantage. As we noted above, the majority of workers want to be paid every day. As more and more hospitality businesses move to this model, those who do the bare minimum will get left behind.  Switching to same-day pay helps you recruit and retain top hospitality talent. 
• Improved cash flow for your staff, making it easier for them to manage their expenses and less likely to overdraft or default to payday loans or credit card debt. 

Regardless of what your state’s tipping laws require, it’s clear that most employees want to take home their earnings the same day they work. By switching to instant, digital payouts—and by replacing outdated methods like cash and paper checks—your business can save time and money in the process. 

Learn how switching to same-day digital tip payouts can help you build a more competitive business—no changes to payroll, prefunding, or cost required. 

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