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Consumers increasingly face a choice whether or not to shell out extra cash in tips for a coffee or snack to go with digital payment devices prompting them to add sometimes as much as 30 per cent to their bill.Ryan Remiorz/The Canadian Press

Corey Mintz is the author of The Next Supper: The End of Restaurants as We Knew Them. And What Comes After.

The Today platform by Toronto fintech XTM inc. PAID-CN is basically a prepaid Mastercard used to distribute tips to restaurant staff. Over the past year, as society turns increasingly cashless, the card and its software have become more common in chain restaurants.

The system presents a major savings in time for managers tasked with distributing tips to employees. However, I have heard workers complain about issues related to the platform, also called Tipstoday, including money lost from their digital wallets when scammers gain improper access. Most importantly, workers have complained about fees for accessing funds and argue that the use of the platform may contravene Ontario’s Employment Standards Act, which prohibits restaurants from imposing any “deduction” from tips.

A spokesperson from the Ontario Ministry of Labour told me: “Our ministry is reviewing concerns related to the use of Tipstoday and won’t hesitate to take action if needed. Restaurant workers should receive every dollar they have earned and are owed.”

Legal or not for the restaurants, though, I think it is wrong that workers are essentially made to pay to access their tips.

Over the years, we’ve seen a disruption pattern in the hospitality and tourism sectors. A decade ago, companies such as Uber Technologies Inc. UBER-N, Airbnb Inc. ABNB-Q and DoorDash Inc. entered the market with products that offered convenience – partly through user-friendly software, but mostly by ignoring existing labour, licensing, zoning and safety laws.

Because lawmakers were slow to act, by the time these disruptors became a noticeable problem for workers and small businesses, the tech companies had already entrenched themselves in the lives of consumers and were pitching the fiction that we couldn’t do without them (as if we couldn’t get pizza delivered before the smartphone era).

This time, a tech solution for distributing tips shows the potential to bring about the same type of disruption.

The problem is not XTM itself, which for all its disruption is a simple payments processor offering a legitimate service. XTM chief executive Marilyn Schaffer attributes stolen funds to weak passwords, not a hack of the company’s system. And XTM is not the target of the Ontario ministry’s review. The ministry will only determine in case-by-case complaints whether an employer is breaking the Employment Standards Act through the use of XTM’s platform.

While the ministry has not said which restaurants are involved in its review, XTM lists the Moxies, Earls, Boston Pizza, IHOP and Pizza Hut chains as clients.

For their part, Moxies, Boston Pizza, IHOP and Pizza Hut, did not respond to requests for comment. Earls declined to comment. None has been accused of wrongdoing, and it remains to be seen how the ministry’s review will unfold.

So, why did these companies turn to XTM in the first place? The company’s platform offers a tremendous convenience to employers that’s hard to value without first understanding the system it is disrupting.

The traditional system for distributing tips is a manager who fills envelopes with bills and coins, leaving them under the cash register for employees to pick up. Over the past decade, this method has held on, even as digital payment has overtaken currency use, often forcing restaurateurs to withdraw paper money from the bank because there hasn’t been enough cash from sales to pay out tips.

Though time-consuming, they’ve done this because it maintained the narrative that restaurants have no control over tips, giving tipped workers more wiggle room to decide how much to report to the Canadian Revenue Agency, and restaurants room to avoid payroll tax and other deductions.

For the manager who doesn’t have to stuff cash into envelopes while correlating with scheduling spreadsheets, the Today platform represents a huge savings in time. XTM’s marketing material claims that a restaurant with 75 employees can save $50,000 a year.

Even better, until March of this year, it’s been free for businesses to use. Now businesses pay $50 to $90 per month to license the software. XTM’s Ms. Schaffer said: “We cover customer service, onboarding, client support, etc.”

For owners and managers, that’s amazing. But if restaurants are saving money, it’s outrageous when we consider where those savings are coming from.

Ms. Schaffer told me that XTM’s primary source of revenue is from the vendor fees paid by merchants when cardholders use Today for purchases. That’s entirely reasonable. That’s how every other payments processor makes money.

But Ms. Schaffer also said: “We pass on the cost of facilitating an e-transfer at $1.50.” That is, users of the card – restaurant workers – would have to pay that fee to transfer the money into their own bank account. Restaurant workers also have to pay fees to withdraw from out-of-network automated banking machines.

Ms. Schaffer says the fees such as $1.50 for transferring money to bank accounts are “near-free.” But “near-free” is not free. Being required by your employer to pay anything to access money (landlords don’t take prepaid credit cards) that you worked for is unconscionable. Workers have the right to bank where they want. They shouldn’t be forced by their employer to find a partnered bank to avoid out-of-network fees, or to annoy neighbouring business that become de facto payroll offices, depleting bar ABMs that are supposed to be for customers.

Kudos to Ontario’s labour ministry for looking into this. But it needs to do so quickly.

Without plain direction from the ministry, hospitality employers are rapidly embracing this payments system. I think the ministry is negligent for letting that happen.

If companies such as Earls and Pizza Hut are saving so much money, why should their workers have to pay for the company’s tech? This convenience looks like a wealth transfer from low-wage earners. What kind of employers are willing to risk being in breach of employment law, while essentially charging employees for the cost?

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