Automatic Tips for Large Groups May Soon Disappear

The chain in July stopped automatic tips at 100 restaurants in four cities, where it is testing a new system in which the restaurants include three suggested tip amounts, calculating for the customer the total with a 15%, 18% or 20% tip on all bills, regardless of party size. Diners can opt to tip more or less than the suggested amounts, or to not tip. Depending on how patrons react and how well the new software system works, Darden may switch to such suggested tips at all of its restaurants. A spokesman said the company will decide by year-end.

According to the Wall Street Journal, the IRS is reclassifying automatic service charges—i.e. that 18 percent service charge you sometimes see when dining out in groups of six or more—so that they’re treated as regular wages and subject to payroll taxes, rather than tips, which are up to employees to report to the IRS come tax time. Restaurants like those from Darden, which includes the Olive Garden and Red Lobster, are considering getting rid of the automatic gratuity charges for large groups and testing out suggested tipping to see if they can work around the new tax rules.

Also: Serious Eats has a discussion of how to tip when dining at the bar, and has this to say to those who complain about the tipping system in the U.S.:

Don’t like the system? Thinking “Why is taking care of the employees my business?” Well, because you’re eating at a restaurant in America, and by doing so, electing to participate. And maybe some day we’ll figure out a different system, like every other goddamned country. But for now, this is what we got.

Photo: hattiesburgmemory

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2 Comments / Post A Comment

lapgiraffe (#1,336)

I have many friends in the restaurant industry, and this doesn’t seem to be new news, or rather it’s interesting that the automatic tip (and big corporate restaurants weighing in) is what has triggered it making the News. I haven’t had a chance to talk to them about this since it came out, but what I know is that 1) a substantial portion of their tips are now coming in their check because the abundance of credit cards means there’s not enough cash at the end of the night and 2) this has already altered how they report and tax their tips. I think they are still able to get that money untaxed, and file their 1099s or whatever it is at the end of the year, but technically there is now an electronic record of what they were tipped and the days of underreporting are, if not gone, definitely diminished.

Not only that, but I know a specific restaurant (100 seats, which is moderate for city but definitely a fraction of, say, an olive garden, and privately owned) who has had some serious tax talks with their staff because of increased auditing (or fear thereof) and while some cash tips definitely get pocketed, it’s made everyone there quite legit in their taxes. It should probably also be noted that this is a pooled house.

Point is, I’d love to hear from some servers and bartenders out there if you’ve already seen things change regarding tips and taxes.

jfruh (#161)

I would actually be really curious to see how those “suggested tip” numbers (which I’m seeing on more and more receipts) affect tipping, in line with the Nudge theory of economics — for instance, whether they cause people to tip who wouldn’t have otherwise done so, or cause people to tip higher for various reasons (were previously self-servingly bad at math, or who would’ve tipped 15% but seeing the 20% option made them more likely to go for the 18% one, etc.).

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