Will digital tipping replace cash tipping?
Miguel Almunia writes in the Economy Blog "Nada es Gratis" that in Spain there are no clear rules on how much to tip (as is the case in other countries such as the United States) and many people tend not to tip at all. However, tipping is a not insignificant part of income for hospitality workers. Digital tipping also has new implications for both workers and hospitality businesses in this transitional phase.
Main takeaways from the article:
The author analyses how the trend towards greater use of card payments affects the (shaky) balance on which tips were based before the pandemic.
- Unseen eyes... uncollected tax revenue
Traditionally, tips have always been left in cash. In small establishments, it is customary to make a common "pot" for all workers.
When tips are left in cash, it seems that the tax authorities' control is quite complicated due to the lack of necessary and transparent information on the amount of these tips in cash for each worker.
- The arrival of card payments has made things more complicated
When payments are made by card, things become more complicated when customers leave tips by card. The business must incur in a few additional costs (adjustment of dataphones, software, accounting) without receiving any direct benefit.
Tips are considered as income of the tipper and are therefore subject to personal income tax.
- Bargaining between employers and employees
The big losers in this new situation are the workers in the hospitality sector: as a result of the change in the means of payment, they lose a significant part of their income. To recover it, they need their employers to make an investment in software which, a priori, they have little incentive to do. This is an equilibrium from which it seems difficult to escape in the short term.
- So what is the future of tipping?
In the short term, different models of tipping will coexist: some people will continue to tip only in cash and more establishments will accept tips in card payments... but some establishments will probably resist the change.
- Will technology solve it?
According to the author, digital solutions are starting to appear that create personal accounts per waiter via a QR Code. We will see whether these developments will catch on in the coming months.