Accepting Tips From Customers: How to Add Tipping to Your Service Business

Which home service industries can accept tips?

Tips can be accepted by any service industry, but they’re most common for service providers in the following industries: 

• House cleaning
• Landscaping and lawn care
• Junk removal
• Pool services
• Dog walking
• Moving
• Appliance delivery and installation

Customers also tend to leave tips regardless of the industry when: 

• Someone goes above and beyond to complete a job
• A job is finished before a deadline
• You respond to an emergency call
• It’s a holiday, like a long weekend, or outside of typical work hours
• You can accommodate special requests, like texting when you arrive instead of ringing the doorbell
• You respect the client’s property by wearing shoe covers or leaving the workspace clean and free of debris
• Employees are polite, friendly, and knowledgeable
• Jobs that require extra work, physical effort, or hazardous conditions

As you can see, good customer service is at the heart of tipping. The more you work to provide an outstanding customer experience, the more likely a client is to want to thank your team for their time and effort.

READ MORE:Customer service tips from 12 experts

Tipping rules and regulations

Before you start accepting tips from customers, it’s important to understand the rules and regulations you must follow. To stay compliant with federal and state labor laws, you need to: 

1. Ensure your employees still receive at least minimum wage

While you can count tips towards your employees’ overall pay, it’s still your responsibility to ensure their total pay meets federal or state minimum wage requirements. If they don’t, you will need to cover the difference. 

Their base pay and wages combined must be at least equal to the federal or state minimum wage.

2. Define tip ownership

In most cases, tips belong completely to employees. That means employers can’t legally take a portion of them unless they qualify as an exception, like tip pooling. 

If your service business does implement tip pooling, you must follow the Fair Labor Standards Act guidelines. For example, only staff who regularly receive tips can participate in a tipping pool. It can’t include managers or supervisors.

If your employee receives a digital tip, like on a credit card, you’re allowed to deduct a small processing fee, but the employee still needs to get the majority of the money and it can’t reduce their wage to below minimum wage requirements. 

3. Report tips on your taxes

Tips are considered taxable income and as an employer, you’ll be responsible for reporting and withholding taxes on any tips your employees report. 

As for your employees, they must declare all tips they receive, no matter whether a client tips them with cash or a credit card.  

4. Enforce a voluntary tipping policy

Tipping must always be voluntary for customers. While including a tip section in your payment process is fine, it must always be optional. You can’t force a client to tip.

5. Know your state laws

Certain states, like California, have more strict tipping rules and regulations than others. Review your state’s tipping laws before you add tipping to your service business so you don’t accidentally wind up breaking them.

How to collect tips

When it comes to collecting tips, you have a few different methods to choose from depending on how you handle customer payments. The most common ways for service providers to accept tips include: 

1. Cash tip

Cash is a popular way to leave a tip, but it’s hard to track, easy to lose, and makes accounting more complicated. Still, many clients like to give cash tips to service providers since most of the work takes place in person. 

If you decide to allow employees to accept cash tips, set clear guidelines for them to follow, such as: 

• Documenting the tip amount, client, and job it’s associated with
• Reporting it to your accounting department for tax compliance
• Storing the cash in a safe place until the end of their shift so it doesn’t get lost

2. Debit/credit card tip

Adding a tip option to online payment methods, like debit and credit card payments is a better way to accept tips than cash because you can easily track, report, and distribute them. 

However, to accept tips via an online payment method, you need to have payment processing software like Jobber in place. 

Most digital tips are accepted via: 

• Mobile payment devices or card processors, like Jobber’s card reader, when payments are collected in person.
• Online invoices and client portals when customers make payments online through your website, CRM, or payment platform. 
• QR codes and payment links which can be on digital invoices, follow-up emails, print materials like business cards, or signage displayed at the job site while you work. 

Using Jobber’s payment software, you can collect tips whenever customers make credit card payments. This information shows up in your client’s billing history, providing clear documentation and allowing you to distribute tips to the employees who did the work. That way, the right people are rewarded for providing an excellent customer experience.

The benefits of accepting tips from customers

Accepting tips comes with many pros, both for you and your employees. By offering employee tips in your service business, you can: 

1. Attract and retain top performers

Service workers who are passionate about the services they provide will want to work for a company that allows them to be rewarded for going above and beyond. Not only does it boost their pay, but it offers them a sense of recognition and appreciation, increasing job satisfaction and retention. 

2. Motivate staff

Teams that have the potential to make extra money on the job are more likely to go the extra mile. Their efforts can be directly rewarded, motivating them to do their best for every client.

The higher the quality of work, the more customers are to leave positive reviews, refer you to friends and family members, and become repeat customers. 

3. Enhance customer satisfaction

Happier staff members make for more satisfied clients. Employees who are motivated to do a good job build stronger client relationships, do better work, and foster loyalty with customers. 

In turn, clients typically have fewer complaints and are generally more satisfied. 

4. Improve cash flow

If you have staff members, the tips they receive belong to them and don’t count towards your business revenue or profit. 

But if you’re an independent contractor or sole proprietor and you personally receive tips, they can be used to improve cash flow, cover business expenses, and supplement your income.

Best practices for accepting tips from customers

If you’re ready to start accepting tips, use these best practices to set yourself up for success. 

1. Make tipping easy

If you use a payment processor like Jobber, make it easy for clients to tip you for good service by adding a suggested percentage like 10, 15, or 20%. That way, they can click on the tipping option that works best for them without having to calculate an amount themselves. 

2. Educate staff

Tell your staff members exactly how tipping will work within your service business by explaining how they will be tracked, who receives them, and what their responsibilities are. Make it clear that tips are voluntary. 

3. Track all tips

Tips, whether cash or credit, need to be declared, tracked, and reported for tax purposes. Make a process and set guidelines for ensuring all tips are handled correctly to avoid issues with the IRS or use payment processing software like Jobber to: 

• Document important tax information
• Keep detailed records
• Maintain compliance
• Prevent employee or client disputes

That way, you can worry less about keeping track of tips and focus on more important things, like providing great service and growing your service business.