Vickroy: The end of automatic tipping?
By Donna Vickroy email@example.com Twitter: @dvickroy September 11, 2013 7:48PM
New Internal Revenue Service regulations that take effect in January will make automatic service charges at restaurants subject to payroll tax withholding. Some restaurants are already planning to do away with the automatic tip.
Updated: October 15, 2013 6:36AM
Whether you like having restaurants do the math for you or not, group dining is about to change.
Get ready to say adios to the automatic tip.
So now, in addition to having to figure what’s your portion of a foot-long tab and whether your two martinis balance out your brother-in-law’s surf and turf, you’ll have to figure the tip.
But if you’re one of those diners who railed against being stuck with an automatic tip for service, be it good or bad, this should be good news.
Starting in January, the Internal Revenue Service will consider automatic gratuities to be service charges, subjecting them to payroll tax withholding and requiring servers to wait until payday to collect on them.
The way things are now, servers receive a low basic wage through payroll and must file tip income on their own. The IRS change would lump automatic tips into the basic wage category.
In response, local restaurants and national chains are considering doing away with the automatic gratuity.
Texas Roadhouse, which has restaurants in Tinley Park and Joliet, has begun phasing out its long-standing system of automatically adding 15 percent to the checks of large groups. By year’s end, it will be gone completely, said Travis Doster, corporate spokesman for the national chain.
“We’re trying to figure a way to protect the servers,” Doster said.
In addition to sparing diners from having to do the math, automatic tipping, he said, ensures that those servers who wait on large groups get their due. Many servers prefer small parties to large ones, he said.
A server’s goal is to turn as many tables as possible during a shift, Doster said, and “large groups tend to take longer to service, they tend to stay at the table longer and chat.”
And sometimes, said Mike Lorenzo, manager of Papa Joe’s in Orland Park, when large parties are chipping in on the total, the “gratuity can get lost in the figuring.”
As with many local restaurateurs contacted this week, Lorenzo had yet to discuss the matter of automatic tips with his staff. Many are waiting for their accountants to explain the change before deciding how to address
Papa Joe’s, a popular Italian restaurant, serves a lot of bigger tables because of its family-style menu. But to protect servers, the restaurant would likely phase out its system of adding an automatic gratuity to bills for parties of eight or more, Lorenzo said.
“With the computer systems these days,” he said, “it would be easy enough to put three suggested tips at the bottom of each check. That way, we’re still doing the math for the public.”
Another concern, Doster said, is that states may consider service charges subject to sales tax. He said some states are looking into whether they would be able to come after restaurants for back taxes.
Labeling tips as service charges not only means a loss of take-home pay for servers, particularly those who don’t declare all of their tip income, it adds to a restaurant’s paperwork, Doster said.
Rich Jeffers, spokesman for the Darden Group — which includes the Red Lobster, Olive Garden and LongHorn Steakhouse brands — said incorporating automatic tips into an employee’s paycheck would cause logistical headaches.
The Darden restaurants have a policy of automatically adding an 18 percent gratuity to parties of eight or more. But in July, the company began testing the elimination of the automatic tip in 100 of its restaurants in four cities. Chicago is not among them.
Instead, dining parties of all sizes are finding three suggested gratuity amounts — 15, 18 and 20 percent — listed at the bottom of all checks in those test restaurants, Jeffers said.
Depending on how the new system goes over, Darden may implement it nationwide come year’s end. The average tip, he said, is 18 percent.
“For employees who value the model of taking tips home at the end of the shift — for those employees who plan for that — this change could be difficult because they’d have to wait for their paychecks to receive any income labeled ‘service charge,’” Jeffers said.
If restaurants do away with automatic gratuities, will servers still get their due, particularly from larger tables where everyone pitches in what they think they owe?
There’s a risk that customers won’t tip adequately, Doster said, but he hopes the public will do right by waiters and waitresses.
“They work hard,” he said. “They count on that money.”