Can Tipping Solve Labor Woes for Fast-Food Restaurants?

    There’s a lot more to this movement in quick service today than flipping the iPad around.

    Staff inside a fast-food restaurant making chicken.
    Adobe Stock
    Restaurants have struggled to hire and retain employees for years pre-pandemic, and it’s only become more challenging since 2020.

    As restaurants across the country grapple with one of the toughest labor markets on record, more and more quick-service restaurants are choosing to add tipping to a list of perks that entice workers back to their posts.

    And they’re doing so amid a major staffing crisis. With more than 1.7 million job openings across the U.S. in the leisure and hospitality sector, it’s more difficult than ever to find employees. Seventy-eight percent of restaurant employers told The National Restaurant Association recruiting and retaining employees was their top challenge in the past year.

    Tipping may be the answer counter-service concepts need. Category giants like Panera Bread and Starbucks have embraced the idea, offering tip options within their mobile apps. Then there’s Sonic Drive-In, which introduced digital tipping to more than 2,000 locations in 2021. In a matter of months, the company brought in nearly $12 million in tips—boosting employee morale and income (and garnering positive publicity that could encourage more employees to apply).

    From immediate recruiting results to long-term culture plays, here’s why tipping is becoming a movement across the sector in 2022.

    1. Attract more new hires

    If you’re like the majority of restaurants today, you probably have a “Help Wanted” sign in your window. Quick serves that jump on the tipping bandwagon now have a significant competitive advantage over other employers when it comes to hiring.

    That’s because short-term benefits touted by some other brands, such as temporarily boosting wages or adding hiring bonuses, don’t always work to attract the right new hires to your restaurant. Candidates know they’re just that—short-term gimmicks—and not only are they expensive to replicate; they probably aren’t compelling enough to improve retention long-term.

    Tip enablement, on the other hand, provides an instant benefit to both employees and employers. Launching a tip program has little impact on a business’s bottom line, so there’s no need to rethink it or roll it back as market conditions change. That means your staff will see an immediate, sustainable boost in their take-home pay that other restaurants without tip enablement simply can’t offer.

    2. Retain existing employees

    According to research firm Black Box Intelligence, turnover costs restaurants more than $1,800 for general employees—and up to $8,000 per manager. With so many restaurants offering shiny hiring incentives, it’s no wonder retaining employees is just as challenging as hiring them. Once bonuses and other benefits run out, there’s always another bonus employees can chase from the restaurant down the street.

    But as many operators know, with razor-thin profit margins, raising wages isn’t always easy. That’s why adding tipping is a win-win for you and for your employees. When quick-service restaurants enable tipping, they can significantly increase the earnings of hourly workers, far beyond what revenue constraints allow—and give them a reason to stay beyond a 90-day bonus window.

    Incentivize better performance

    The biggest difference between an hourly wage and hourly-pay-plus-tips—your employees now have a financial incentive to deliver a better performance.

    Once financial needs are met, employee performance comes down to three major elements:

    Purpose: Employees have to be able to answer the question, “Why am I here?” beyond a paycheck. Quick service may not be as high-touch as full-service hospitality, but there’s still an element of great service—and enabling tipping allows your team to draw the connection between what they do and what they earn.

    Autonomy: Employees who feel a sense of ownership and accountability over their role are much more likely to stay. Unlike hourly wages, tips revolve around how they show up to work each day, giving them more autonomy and authority over their performance.

    Value: Every teammate wants to know that they’re valued by their company and that they have a path toward long-term career growth. Whether that’s moving from working on the line to managing a restaurant location or helping them start their own business someday, they can take more pride in their work when they know that how they perform ties back to what they earn.

    Considerations for quick-service tip programs

    Increasing take-home pay through tip enablement represents a major opportunity for restaurant employers. And it doesn’t have to look like a tip jar: Increasingly, it’s possible to use digital payout solutions and other technology that integrates directly with your payroll or POS to make cashless tipping and tip distribution easier than ever.

    While tip enablement programs might look different from one quick-service chain to the next, what matters most is that they are secure, compliant with complex tipping regulations—and most importantly, structured in a way that benefits essential, frontline hospitality workers.

    Restaurants have struggled to hire and retain employees for years pre-pandemic, and it’s only become more challenging since 2020. There isn’t a silver bullet to solve the staffing crisis—but quick serves need to come up with long-term, financially viable solutions. Digital tipping, enabled by new technology solutions and the rise of mobile applications, should be considered as an integral piece of the puzzle.

    Justin Roberts is the co-founder and co-CEO of Kickfin, a leading gratuity management platform. Hospitality employers across the country use Kickfin to send real-time, cashless tip payouts directly to their employees' existing bank or card.