Card tips: from the terminal to the paycheck

A tip left on a card is money you receive and then owe to somebody. It arrives in your settlement with the sale, it has to be tracked to the person who earned it, and it has to reach them through payroll with the right records attached. That is three systems — terminal, accounting, payroll — and small stores usually have one of them set up properly.

The mechanics matter most at the seams, and the seams are where the mistakes live.

How does a tip get onto the transaction?

Two ways. Tip at the time of sale, where the terminal prompts before authorisation and the tip is part of the authorised amount. Or tip adjustment, where the sale authorises for the base amount and a tip is added before the batch closes.

The second is the one that causes trouble, because it has a deadline. Adjustments must be made before the batch closes; after that the money has effectively moved and the workaround people invent — running a second small transaction — creates a reconciliation mess and a second processing fee.

Does the tip cost you processing fees?

Yes. The tip is part of the transaction amount, so it is processed like the rest of the sale and carries the same percentage cost. That is a real, if small, cost of accepting card tips, and it is one of the few genuine arguments for a cash tip jar alongside the terminal.

It is not a reason to discourage card tips. Customers carrying no cash tip on a card or not at all, and the second outcome costs your staff more than the fee costs you.

Who decides whether to prompt, and at what amounts?

You do, and it is a configuration setting rather than a fixed property of the terminal. Default prompt amounts are frequently set by whoever installed the machine and left untouched for years, which is how a corner store ends up suggesting percentages that suit a restaurant.

Look at what your terminal currently proposes and decide whether it fits your counter. A suggestion that reads as excessive to your regulars costs goodwill for a tip most of them were not going to leave.

How should tips be tracked?

By person and by shift, from the terminal's own reporting rather than from memory. Most terminals and point-of-sale systems can report tips by server or by cashier if the transactions are keyed to an operator.

If yours cannot, that is the thing to fix first. A tip pool distributed from a number nobody can trace is an argument waiting to happen, and it is the kind of argument that ends good employees.

What are the payroll obligations?

Tips are income and carry reporting and withholding obligations, and tip recordkeeping is a defined area with its own rules. The IRS publishes tip recordkeeping and reporting guidance for employers and employees.

Wage rules around tips — tip credits, pooling, who may participate in a pool, and what a manager may and may not receive — are governed by federal, state and local law and vary meaningfully. This is not an area to copy from another store. Take advice for your own jurisdiction before setting up a pool.

What about timing of payout?

Card tips arrive with your settlement, which means a tip left Friday may not be in your account until the following week. Stores that pay tips out in cash the same night are effectively advancing them, which is fine as a choice and problematic as an accident.

Decide which you are doing and make sure the drawer accounts for it, because a cash tip payout that is not recorded looks exactly like a shortage.