Why Do Restaurants Charge Automatic Gratuities?

There have been many questions concerning tipping answered in the Q of the D, but I've never seen this one. If tipping at a restaurant is up to the customer based on their opinion of the level of service they received, how can a "gratuity" be automatically added to the bill?

The simple answer is, restaurants, as private businesses, can implement whatever customer policies they like, as long as they're within the law and transparent. Restaurants, like nearly all businesses, have the right to set the rules that customers must follow and automatic gratuities are among them.

That said, restaurants are legally obligated to inform customers in advance of the auto gratuity, which is almost always reserved for parties of six/eight or more. You'll either see a note in the fine print at the bottom of menus that an auto gratuity is in force or a staff member will inform the large party of the policy.

One interesting aspect of the auto gratuity, whether for a large or small party, is that it isn't, technically, a tip. Rather, it's a service charge. There's a difference, a big one, that was defined by the IRS in 2012 and went into effect in 2014.

A tip is, according to the IRS, a separate income stream for workers in tipped positions. By contrast, a service charge is compulsory and not a matter of customer discretion; therefore, it's counted as restaurant revenue. Believe it or not, a restaurant owner can choose to dole out all, part, or none of the auto gratuity to the employees.

It can get complicated when the auto grat is factored into employees' wages. In some states and restaurants, staff can be paid less than minimum wage when the supplemental tip income raises the wage past the minimum. In the case of a banquet hall, for example, where the gratuity is part of the total bill and servers do not make tips in most cases, the employer must make sure the servers are paid at least minimum wage. The nuances of this are a bit beyond the scope of this answer.

In the end, a customer can opt not to pay an auto gratuity by 1) not showing up to a restaurant in a large party or 2) not frequenting a restaurant with a service charge for large parties. Otherwise, as long as the service charge is transparent, patrons are liable for paying it.

Now, whether or not any part of the auto gratuity goes to the wait staff is another question. You can inquire, though some restaurants forbid staff from revealing it. You can understand the restaurant's reluctance. What if the restaurant shares the auto gratuity and the waiter tells you it doesn't? Conversely, if the restaurant owners aren't sharing all, some, or any of the auto grat with some poor szhlub serving a table of 10, they certainly don't want customers to know what a racket they're engaged in.

The whole thing is fraught with pitfalls and what we do, when we're subject to the auto grat, is simply pay the freight and let the chips fall where they may. We figure that if the waiters and bus people are working at the restaurant, especially these days, whatever policies are in place are acceptable enough to make their employment worthwhile. Waiters, like customers, can vote with their feet if they're not.

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Comments

Kevin Lewis Mar-17-2022

Uhhhh...well...

Since the restaurant has absolutely no vested interest in whether its employees receive generous tips, miserly tips, or no tips, why would they mandate a service charge if they then turned that amount over to the staff? The answer: they wouldn't. A service charge would only irritate the customers and force them to pony up tips when such an act is supposed to be voluntary--so imposing a service charge creates ill will with no corresponding gain for the restaurant.

That's IF the restaurant gives that money to its employees, that is. I strongly suspect that in most instances, they don't. And then the employees get stiffed, because the customers won't tip if they realize they've already been hit by a substantial service charge.

In other words, an unequal power relationship leads to more money flowing into the pockets of those who wield that power. 'Twas ever thus.

[email protected] Mar-17-2022

Sonny

If we are required to pay,who do we send the 1099 to, the employer or the employee?........(just kidding) lol

[email protected] Mar-17-2022

Tipping

Tipping has been an excuse for restaurant owners to pay substandard wages and expect servers to hustle for tips -To Insure Prompt service.  In Europe tipping is almost unheard of.  The restaurants pay livable wages with benefits and tipping is merely rounding off the bill to an even number.  Last year I spent a week in Germany, ate at local restaurants and had excellent meals and service and a complimentary drink with the host when settling the bill.  My total bill was comparable to its equivalent at restaurants at home.  More restaurants stateside are adopting this model and are finding that they attract and retain better quality workers who are motivated to perform their jobs professionally and after their customers get used to the idea and service largely support the change.

Don the Dentist Mar-17-2022

Alize @ Palms

Many, many tears ago I hosted a pre-wedding dinner for my niece. It was a large group, maybe 15 -17 attendees. I had a ton of comp dollars on my Palms player card, but I fully expected to tip the staff in cash. When they brought the check an automatic tip was included. I just handed my card to the waiter and told him to take it off my comp dollars. I was totally surprised when the tip was also taken off my comp dollars. Now reading this QOD I understand why.

Bob Nelson Mar-17-2022

Kevin

Restaurants certainly have a vested interest in keeping good employees.  If you keep all the tip money you aren't going to keep good employees long at all.  No or bad employees is not conducive to a business's long term future.

Eric Forman Mar-17-2022

Too ingrained in America

Several restaurants in the US have tried switching to the no-tipping model, where they just pay the servers a decent, living wage instead of giving them the minimum and making them rely on tips for the rest of their income. The problem is that it requires raising the prices of the food between 15% and 20%, so their prices looked higher than other restaurants' prices. Despite saying "no tipping allowed," too many people saw one place with a $20 meal and no mandatory tip vs another with a $23.50 price with no tipping allowed and opted for the former because it seemed to be less. So it's basically the cheap tippers who ruined it for everyone else.

O2bnVegas Mar-17-2022

service charge-boo

A server's tip is shared with the bartender (whether alcohol is ordered or not), bar back, and busser.  Thus we don't mind tipping the customary 15% or more (depending on those factors) in a sit-down place, or the 18% for Room Service tip if auto-added since we are doing Room Service for our own convenience.  Hint: always ask, as sometimes it is auto-added, sometimes not in which case you don't want to double-tip.  LOL

What I stand up against is the $9.50 "service charge" recently (2-3 years) auto-added to the Room Service bill, in addition to the auto-gratuity.  

In my experience both are stated on the menus, so you know they are coming.  Fine, but as much money as I put through the casino games, I object to the Service Charge, especially since they didn't used to do that.  No more room service for us, which we used to enjoy.  Heck, the food isn't even as good as it used to be.  Just plan ahead to have something in the room for a late hunger attack.

Candy

Ray Mar-17-2022

A little too b&w for me

I don't believe that the auto tips don't go to the waitstaff. Employees would refuse to work large tables if they didn't get the tips. If ANYTHING in the notification mentions tip or gratuity, it doesn't matter what the government calls it. If the restaurant calls it a gratuity, the staff is entitled to it.

jay Mar-17-2022

To insure Promptness

In Europe you go out to dine, in the US you go out to eat.

A maitre'd is generally the head or manager of the waitstaff, the handler of the reservation book. He (traditionally) would be the one to take you to your table and introduce you to your waitstaff. By tipping the waiter you would get a better table, these were not greeters. It was their job to know who was coming to dinner and to plan the seating of the restaurant including holding back unreserved tables for last min VIPs. When not manning the host stand they were busy hustling concierge's at all the best hotels to get all the best referrals and this meant kicking back tips to the concierge for the referrals. If the patron failed to tip that was noted in "the book" and next time you visited you were asked to wait in the lobby like a smutz. They kept track of your name, who you came with, your kids names - between the maitre'd and the book it was the CRM pre-computer days. This was make or break for a restaurant.

jay Mar-17-2022

... continued

restaurants competed for the best maitre'ds and customers knew if they built a relationship and took care of the maitre'd they could get into the hotspots. 

Conversely a waiter that did not kick back some of his/her tips back to the maitre'd could expect that his section had a lower class of patron or would be empty, and the waiter that did not kick back to the kitchen could expect his orders to be much slower coming out than the other guy that did share.

Sue the greeter working the stand at the Ol'Spaghetti factory taking people to clothless tables for the all you can eat  special is a gate keeper paid minimum wage and delivers min value to both the restaurant and the consumer. She is not in charge of the waitstaff, and garners no respect from anyone in the place. 

No one should be forced to tip for self serve slop and for sure the owners should not be taking a cut of the tips as this is an incentive for the staff to build a cohesive team and share in the profts.

O2bnVegas Mar-17-2022

service charge-boo

A server's tip is shared with the bartender (whether alcohol is ordered or not), bar back, and busser.  Thus we don't mind tipping the customary 15% or more (depending on those factors) in a sit-down place, or the 18% for Room Service tip if auto-added since we are doing Room Service for our own convenience.  Hint: always ask, as sometimes it is auto-added, sometimes not in which case you don't want to double-tip.  LOL

What I stand up against is the $9.50 "service charge" recently (2-3 years) auto-added to the Room Service bill, in addition to the auto-gratuity.  

In my experience both are stated on the menus, so you know they are coming.  Fine, but as much money as I put through the casino games, I object to the $9.50 Service Charge, especially since they didn't used to do that.  No more room service for us, which we used to enjoy.  
Candy

O2bnVegas Mar-17-2022

double post

Don't know how that happened.  Operator error I'm sure.  Sorry.

Candy

RichM Mar-17-2022

Our tipping system works best

The current American tipping system incentivizes good servers to work at good restaurants. Lower pay means lower quality employees. Efforts by restaurants to end tipping tend to focus on "equity" between the servers in the kitchen. In practice, this takes money from servers and gives it to the kitchen. So, of course the servers quit and go where they get paid appropriately.

If this group of owners wants the back of the house taken care of, they can simply increase their wage. Maybe they have to increase costs to implement their wish, but that's how it works in the real world.

Walter Dirzulaitis Mar-17-2022

Gratuity Removed from Check

Ate at the Yardbird restaurant at the Venetian last week and when I got the bill, it had a gratuity added on, 18%, I think. I was dining alone. When I told the waiter I usually like to tip in cash, he said no problem and promptly brought me a check with the gratuity removed. The fact that he did it so willingly and quickly tells me the staff isn’t thrilled with this setup either.

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