Tipping at salons and spas has been a quagmire of issues for, well, pretty much forever.
By Neil Ducoff
June 3, 2019
But in recent years, the migration from cash to plastic, and now electronic payments like ApplePay, means all of us are carrying less cash.
Last year, U.S. Bank did a study and found that 46% of people surveyed used cash less than eight days a month. Further proof that the need for cash is rapidly fading away.
Given that tipping in salons and spas is damn near a sacred practice, owners need a real solution.
More importantly, how your company addresses tipping is directly tied to your service providers’ future compensation, and a significant factor in employee retention. Simply put, it’s time to pay attention.
Let’s start with the three stages of salon/spa owner response to a customer asking, “Can I leave a tip on the credit card?”
Stage 1: DENIAL: No, I am not going to pay those added processing fees. Instead, I’m putting in an ATM and saying, “We don’t accept tips on credit cards.”
Result: Upset and inconvenienced customers, lower tips, and upset service providers.
Stage 2: UNDERSTANDING: I will allow tips on credit cards and reluctantly pay the processing fees. However, my service providers still want their tips daily, so I’ll “play bank” by sending someone to the bank each day to withdraw cash and payout tips every night.
Result: Additional payroll costs for that person who goes to the bank, divides up the cash and stuffs it into envelopes.
Stage 3: ACCEPTANCE: Yes, I’ll allow tips on cards, and will add tip income to their paychecks. They’ll just have to wait for payday to get their tips.
And then there’s the BIG issue of proper tip reporting and withholding tax.
FACT: According to the IRS, “Tips are income earned at work and taxable.” That’s the law.
– You can’t make up a tip percent to report and think you’re compliant.
– You can’t report only tips on credit cards and ignore cash tips.
– You can’t say, “Tip reporting is my employee’s responsibility, not mine.”
FACT: If audited, IRS knows how to find unreported tip income and the owner will always be held accountable for failure to report and pay withholding tax — plus interest and penalties. Owners, tip reporting and withholding tax IS your responsibility.
When owners finally arrive at Stage 3, they believe they are done. But they’re only half way there. Yes, you made it convenient for the customer. But are you optimizing the customer’s experience in a way that will result in higher tips? And are you optimizing your service provider’s experience? The answer to both is, “No.”
Tip amounts reflect the customer experience
Cornell University’s Center for Hospitality Research conducted several studies on tipping. They found waiters experienced a tip increase from 11.8% to 14.8% of the check total when they briefly touched the shoulder of the customer. Two of their studies showed that waiters that squatted next to the table when taking orders and talking with customers, increased their tips from 14.9% to 17.5% of the bill.
All of this can be achieved by the service provider, but the salon/spa drops the ball at the front desk.
Tippy is a new technology company that developed an easy-to-use tip processing system for salons and spas.
Tippy did a salon survey and found that over 50% of customers did not tip aggressively on credit cards, because they believed their stylist wouldn’t know what they tipped (versus the old days of handing the stylist cash).
The front desk tipping experience can make a big difference. The key is merging the convenience of credit card tipping with a personalized “direct-to-service provider” tip connection. Customers know their service providers will instantly see how much of a tip they gave them.
Thank you Strategies!