You’re out for a nice dinner on a special occasion, then all of a sudden the waiter shows up with a bill. You scan down to the bottom to notice an automatic “gratuity” 18-20% or more. The waiter was serviceable, not great, but mandatory “tip”? If that rubbed you the wrong way, I’m sure you’re not alone.
What once started as a rare “automatic gratuity” for large restaurant groups a few years ago quickly spread to just about any size party at many restaurants. Even pizza or other food delivery businesses were getting in the game as well – charging mandatory “delivery service fees”. A bit of a sham, since according to many food delivery drivers, they sadly never see a penny of the delivery service fee, even after incurring all of the costs associated with food delivery.
Now, you know I’m a bit of a frugal guy (probably understatement of the year, I realize, but thought it good for a chuckle). And I RARELY dine out, preferring instead to save money by cooking. However, I do not abuse the tipping scenario as a means to save money. I usually start with a floor of 15% and ceiling of 25% – and the tip ends up somewhere in between, based on service level. I can’t remember the last time that service was so inadequate that I tipped less than 15%.
That being said, I really don’t like the concept of tipping altogether – in fact, hating awkward tipping scenarios is partially what led to me learning how to cut my own hair and I was stressed out for weeks ahead of the inevitable tipping of a kayaking trip tour guide. I would rather just see restaurants and other tipping profession employers simply pay their employees a fair, livable wage and charge more for their services to cover the cost. If you’ve traveled out of country much, you’ll notice many countries don’t allow tipping as a form of built-in compensation to justify lower minimum wages paid to employees (although many Americans still feel cultural tip guilt and keep tipping away).
Suggested tip amounts so that I don’t have to play a guessing game, use my brain for math, or break out a phone calculator? That’s fine and dandy. But the automatic gratuity (an oxymoron) particularly rubbed me and I’m sure many others the wrong way.
Well, thanks to IRS rules around automatic gratuity, originated in 2012 but to start being enforced in 2014, mandatory tipping will likely be going extinct.
It’s not that the IRS is outlawing the practice, rather, they are reclassifying automatic gratuities as “service charges“, which are treated as wages, rather than tips for employer tax records, with the following statement,
The Internal Revenue Service reminds employers that so-called “automatic gratuities” and any amount imposed on the customer by the employer are service charges, not tips.
Service charges are generally wages, and they are reported to the employee and the IRS in a manner similar to other wages. On the other hand, special rules apply to both employers and employees for reporting tips. Employers should make sure they know the difference and how they report each to the IRS.
The result is that the restaurants would lose a special tax credit that is available to them for paying their share of payroll taxes on tip income (if that income were instead classified as a wage). So many, if not all, employers will stop the auto-tipping practice so that their employees can get tips the old fashion way and then they can keep getting the special tax credit.
Hence, the end of automatic gratuities. It’s a step in the right direction.
Automatic Gratuity Discussion:
- Do you dislike automatic tipping policies? Are you happy about this change?
- What’s the most frustrating or highest % automatic gratuity story scenario you’ve encountered?
- Do you think the U.S. tipping culture should change?
Yes, I like auto-tips, and no, I’m not happy about the change. I’ve been stiffed more than once by large parties who have demanded all of my attention then declined to compensate me for my work. And no, I’m not going to spend eight hours running around getting treated like dirt by customers for $7.50 an hour when I can make $10-20/hr by treating my customers right. This debate is part of a much larger problem, and eliminating tipping will just cause more problems unless the standards of the service industry are raised. Unfortunately, in an economy where there are 10 people waiting to do your job, we’re not exactly incentivized to work for change.
Tipping bothers me in general. Why not just pay employees more? I know at my job I work my tail off at work and never get a tip. I’ve heard all the arguments as to why they deserve the tips, but anyone with any kind of work ethic works just as hard (or harder depending on the server) at their job and sometimes get pretty minimal pay too. I don’t believe I should be tipped, I just don’t think I should be required or obligated to tip, no matter how good the service. And no, I don’t stiff servers, I think I fall in the average tipper category, I just don’t like that I am expected to and that the percentage keeps going up. I remember being taught 8-10% but now 15-25%! Crazy!
Obviously, you have never worked in the service industry!!!
when the industry pays more than 2 dollars an hour, perhaps your irritation about auto gratuity would be valid. in general, however, it does not. and many cheapskates, jerk and entitled young kids will run a waitress ragged and leave her two dollars for a party of 15.
In this state at least you can’t make less than minimum wage and we have one of the highest minimum wage in the country, so that argument doesn’t work for me. I don’t think you should get paid extra for being nice, it is the job you are paid for. I have to be nice in my job, if I don’t, I get fired. I don’t mind, because it isn’t hard to be nice to young children who need you. But this idea that I should be paying someone extra just for doing the job you are paid to do is nonsense. I agree that if you do happen to be somewhere where you are paid an appalling base pay and rely on tips for your pay I get it. That’s not the case in this state though.
Ok so restaurants should start paying minimum wage vs. tip credited pay… so now you’ve doubled the labor cost for the restaurant. So since it is a business and needs to profit that burger you get at many places for $8.95 is now going to be $12.95 because not only did the restaurant have to give all the servers bartenders and bussers raises but now the cooks want more money as well… Also if a server is making a flat wage vs tips do you really think we give a rats patooty about how much your really enjoying your dining experience… Don’t think you will be almost done with your $13 burger before you get your refill on diet coke that you ordered when the food came…nope your server will be in the side station on their cell phone planning their night after they get done and won’t really give 2 shitzles about you…. ( Not that we do now but we have to fake it to get that tip……)
In theory, you’re correct; however, restaurants have some loophole that allows them to pay under $3/hour because tips are expected to make up the difference between that and minimum wage. It’s ridiculously unfair, and I can’t believe they’re allowed to get away with this.
As a concept, I think tipping is silly – just pay workers more. Some may argue that it encourages wait staff to be better; I’d argue that they should be encouraged to do their best job because it’s their job, and if they’re inadequate, they’ll be fired. That being said, I realize that waiters and waitresses make most of their money off of tips so I always tip well.
The reduction of the mandatory gratuity, however, makes very little difference to me. Unless the service is egregiously bad, I usually tip somewhere from 18-20% anyways. However, I sympathize with wait staff who may not receive as high of tips from cheaper diners.
Nothing against tips…but if waiters rely on most of their income for tips, what happens to other workers who are getting paid next to nothing to build houses or clean houses or pick up crops on the fields. Don’t they deserve tips too?
those people don’t get paid $1.80/hour
No one gets paid $1.80 an hour. I think what people are missing is that the price increase to the consumer will be huge. I own a restaurant and you can trust me when I tell you, you do not want a minimum wage employee serving you. In my opinion the wage for a presentable qualified server would be in the neighborhood of $10.00 per hour, thats double what we are paying now. The profit margin is not very good to begin with and the business owners are not going to eat the loss, so think of what that will do to the menu prices, they would better than double. (welcome to the world of $20.00 hamburgers) This is a really bad idea, it will cripple the industry. All the mom and pops would shut down, restaurants would become something that only the rich would get to experience.
No, sorry, but that’s just FUD.
Prices are going to double? I’d like to see the math on that.
You don’t know of the minimum server wage. It’s pretty commonly under $5. I worked in Texas it was $2.13, Arizona was $4.35. worked a few other places. I’m just glad I don’t wait tables anymore. I’ve worked at restaurants where you had the option of using the auto-tip or seeing what they left for parties over 8. Most servers used the auto tip because they’d been so badly burned before. The thing is I don’t think people should be able to use restaurants like this unless they are doing a banquet. A party of 20 at Denny’s or similar restaurants are ridiculous, the amount of stress on the server increases, there’s always one person who doesn’t like the food and the tips are generally small. I was lucky in the v sense I was a good server and really lucked out in getting managers that were helpful so I usually would get around $50 overall tips. The issue here is I likey would have made more turning 2 and 4 top tables in the time I used on the party and made closer to $100 and usually more than depending on the day of the week. Again, I’m so glad I don’t wait tables and I rarely dine out.
In texas servers are paid 2.15 an hour. Look it up
It’s funny to hear the waiters chime in on this discussion. Name another industry that can post one price and then “demand” you pay another. Tips have become a MUST in any situation. Tipping is basically the businesses way of passing the buck to customer to pay their employees wages the cheapest way they can. I am willing to bet my house that over 90% of tips given are not being reported and becoming tax free. Raise the prices on the menu to show the real price you pay for the food/service and let people decide if its worth it. Let employers expect more from their wait staff instead of entitled feeling wait staff that some how thinks taking order and bringing people food they didn’t make should be paid $20/hr tax free. Save your eye rolling of my 15%-20% tip and let me go back to the kitchen and hand it to the real workers that get overlooked; chefs and the people who make my food. I don’t go to restaurants to be put on a kings chair and given fake smiles, I go to eat.
Ummm well as a server who would like to build credit and buy a house 1 day. I claim all of my tips. Ps. The IRS comes after you for not claiming. So your 90% is outlandish. I would love restaurants to raise the price of food and pay its employees adequately. But you can bet your house and your ass that if it’s not 20 an hour you’ll be having service from 18 year olds that def dont give a shit about their job
I recently went out to a restaurant with four friends, party of 5 total, and we were charged an automatic gratuity of 20%. This enraged me. In addition to being a set tip amount, because it was classified as a “service charge” we had to pay sales tax on this gratuity! After sales tax and tip we ended up paying more than 30% of the cost of our food, which was already overpriced.
Normally I do tip 20%, but I don’t want to be forced to tip someone 20%, particularly when the service is not that great. Then to be charged sales tax on top of that gratuity was just an extra slap in the face.
I was in Taiwan several months back, it was very reasonable to eat out because there was no sales tax or gratuity, just what we agreed to pay when we ordered the food, what a great concept!
Great example of the automatic gratuity used to its worst. I bet you will not be rushing to head back to that restaurant soon.
Tips are NOT calculated on the Total bill gratuities are only charged on the sub-total before tax…. In ALL states…
Mandatory tips are taxed in California: http://www.boe.ca.gov/news/pdf/l199.pdf
You did not pay sales tax on gratuity. Get a calculator
The majority of the world (other countries) don’t do tipping and I think tipping is stupid for doing a job that is supposed to be done anyway.
Anyone know if this rule change would apply to corkage fees at a restaurant? There is this wine bar/store that we love here in Indianapolis. If you order a glass of the bar’s house wine, you pay what you see, but if you order a bottle, they go into their store, get the bottle and then charge a $7 corkage fee, as if you you had brought an outside bottle into the bar!
Thats ridiculous. I understand a corkage fee when you bring in your own bottle. Its taking away their business so I’m cool with that.
But… you are buying an entire bottle of their wine. They do not have to worry about throwing out half the bottle if it goes unused.
Sounds to me like they might lower the cost of the bottle vs per glass then make it back. I’d never go back to a restaurant that did that.
Can’t you bring your own bottle opener? We have one here and if we open it ourselves we don’t get the corkage fee
I really enjoyed the diner scene in the movie Reservoir Dogs. One person doesn’t believe in tipping. The others ask him doesn’t he think the waitress worked hard to bring coffee and serve them? He responds that people at McDonald’s works hard but doesn’t get a tip.
I’ve worked in a truck stop. Waitstaff gets tips. They split them with the bus boys. I was a dishwasher I didn’t get a tip though physically I worked harder then the waitstaff.
Tipping has become an odd thing I agree with many commenters here. It seems more and more jobs are adding in tipping that I wouldn’t have thought. It counts on generosity of the customer but does impose a possible guilty feeling if you don’t.
However with all that said, waitstaff get paid below minimum wage so I have no problem paying them a tip at all.
The best way is for an automatic gratuity on every meal with all positions benefiting – servers, hostesses, bartenders, and cooks.
Everybody shares the spoils and suffers when things go sideways.
The quality of the server is irrelevant if the food is terrible, or the place is dirty, or the drinks watered down.
If people are unhappy with the meal they can get the manager to comp the food or provide other compensation.
This is an interesting topic. I dont know how the restaurant industry would absorb the cost of more pay versus no more tipping. Also, there are many places that more pay wouldnt justify the tip loss. During college I had a fraternity brother who worked at a very exclusive restaurant and on a Thur-Sun night he would easily come home with $500+ in cash just from tips. The meals fetched almost $100 and the drinks were no less then $12+ each so I cannot imagine charging even more to makeup for the pay difference without tips.
This will never happen. Despite what this article might say. All you cheapskates are geting ur hopes up about nothing.
Where I live servers make $3.35 an hour along with busters, runners, and bartenders. Where I work we tip out 5% of our sales so if I work and sell $1000 I’m tipping out $50 to bussers and the bartender. My restaurant doesn’t do autogratuity So if I get a table of 30 people and their bill is $1000 it doesn’t matter what I make I’m still tipping out $50, I have walked out before making less than what I’ve tipped out because people don’t tip accordingly. Is that fair that I’m there for 5 hours working my butt off making $40? No. Also if we got rid of tipping and employers paid waiges they would have to raise servers, bartenders, bussers, runners, and take outs wages. There’s no way they could pay all of us more than 10 dollars and hour and serving is a terrible job. No one would want to serve for less than $15 an hour. The only reason people do serve is because the pay is competitive and for the most part the harder you work the more money you make. So say goodbye to getting waited on in any restaraunt if tipping no longer becomes a thing because no one would want to serve for $10 an hour and most restaraunts can’t afford to even pay us minimum wage so good luck finding somewhere that will and when you find that place enjoy your $20 burger with less than average service
Ok… buffets. Went to a restaurant for Mother’s Day. Turns out they are only having buffet. Run high. No ordering from menu available. There were 8 of us. We had waited a while for our seats so we decided to stay once we learned buffet was only option. Unfortunately none of us bothered to ask about the cost of the buffet, ( we were distracted by Mother’s Day celebrations, 1 birthday girl, and 2 brand new college graduates). Anyway, we never saw a menu nor were told the price of buffet. Because we never got a menu, we never saw anything stating that there would be an added charge to our bill for a group of 8. Long story short- the buffet was $35 a person! We saw the waitress 2 times our whole visit- she brought 2 rounds of drinks- the 2 round came with the bill. They had added 20% gratuity to a $30 / person buffet. Now I totally understand 20% to a regular server’s bill in a large party. They earn that and I have no problem paying that. But NOT on an expensive serve-yourself buffet!!!!
No, asshole, we get paid 2.13 an hour and the automatic grat is for parties of 6 or more adults, who might run their server all over the place and stiff them while they could have been waiting on others who know how to tip other than YOUR cheap ass. By raising server wages to the bare minimum(which is all a restaraunt is ever going to do-$7.25) will eliminate any good service and you’ll be getting all of those refills, condiments, etc. yourself when you are out with a lady friend and trying to impress her. That grat is there for a damn good reason. Assholes like you should have to wait tables for a living for a couple of months, and then come back and talk that shit. And I don’t care about my language, b/c obviously you don’t care about any of us servers who are trying to give you a real nice experience.I hope you leave a sub-standard tip someday and a server throws a damn drink right in your face!!!!!!!
By law, you do not have to pay the gratuity, even when it is automatically added and if you think the kitchen staff is working harder than your server, than your a fool. Most kitchen staff each have their own stations, your server is taking care of multiple tables with multiple requests. From the moment they take the order, get drinks, appetizers, soups, salads, refills, bringing out the food, running for all your “extras”, then bussing, cleaning and resetting the multiple tables, oh, let’s not forget, answering the phone, ringing you up, running your credit cards, getting you change. All the while, little Johnny and Suzy are dumping sugar, running around and creating messes, while mom and dad stare at their phones
When I was an E2 in the Navy I busted my a$$ taking care of patients for what equaled to 2 bucks an hour. Sometimes had to stand duty afterwards for an additional 4 hours. I never got or asked for a tip for serving my country because it was MY choice to do so. Why should servers require a tip for serving food? The salaries should be on the restaurant owners not on the customer. I didn’t choose your job just like no one made me join the military.
Just hosted a birthday dinner with 28 guests. The restaurant added an automatic 20% gratuity which I knew in advance and expected for a large party. However I saw that the tax on the bill was over $45 on a $400 food bill. That did not seem right, plus there was tax assessed on a corkage fee. The restaurant manager told me that tax was assessed also on the gratuity, it’s the law to do this when the gratuity is mandatory. I was very surprised, but in fact it is legal. Note that restaurant did not call it a “service fee” but “20% gratuity”. Not sure how this became legal! Why should customers pay SALES tax on what are presumably tips for the wait staff???
The people in this post are generally the people we (servers) enjoy serving. When the Cheesecake Factory had automattic gratuity, I declined to use it because most of the time people like yourselves would tip us well. This was in San Diego, California, where we also received our regular minimum wage.
Later I waited on tables in Philadelphia and St. Louis, and the general population as a whole are INSUFFERABLE, MISERABLE, DISGUSTING, HORRID human beings.
Most servers aren’t greedy. We don’t want or expect you to tip us outrageously. But we sure as hell don’t come to work to slave over ratchet, unhappy, ghetto people complaining about food they’ve devoured to get it for free who literally ask for 30 separate checks, pay in cash, ask for every penny back, and demand this all instantly, meanwhile hollar at you the second you spend any time helping any of your other 5-8 tables.
Original poster, you’ve got it all wrong. The person (people) to blame are always the people who mess up all the good things for the rest of the population. Stop blaming servers and the restaurant, it’s the American population that is horrendous. Other countries don’t require tipping because their general populations are IMMENSLEY more pleasant than Americans.