Earlier this year, the IRS made
changes to its policies regarding automatic gratuities. While adding gratuity to a large party's bill is fairly
standard in America, the new rules may have restauranteurs making some serious changes. The controversial practice ads 18-20% of the bill in order to guarantee a fair tip for servers. However, under the new guidelines, these automatic gratuities now count as "service charges", and must be reported as wages for tax purposes. As
Nation's Restaurant News points out, this could mean big changes for restaurant prices around the country, as operators struggle to keep up with rising labor costs and increasingly complicated wage laws. According to the IRS policies
(quoted from NRN), a "tip" is defined by the following qualities:
- The customer makes the payment free from compulsion;
- The customer has the right to determine the amount;
- The payment is not the subject of negotiation or dictated by en employer's policy;
- Generally, the customer has the right to determine which employee receives the payment.
Those qualifications mean that in order to report gratuities as tips, rather than wages, restauranteurs must turn to tactics other than automatic gratuities. Some are using the tried-and-true method of printing 15%, 18% and 20% suggestions at the bottom of a party's tab, while others may turn to alternative payment processors, such as Square,
which puts highlights tipping during checkout. The problem, highlighted in a recent opinion article in
Huffington Post, penned by server Stefanie Williams, has to do with the way servers in America are paid. Many receive a standard wage that is less than the federal or applicable state minimum, which is legal so long as the employee is able to make up the difference in tips. Even though the practice of
tipping is losing traction (and is almost completely unheard of in other parts of the world, such as Europe), many restaurant owners have stuck with the convention in order to prevent the need to raise menu prices. Now, as
NRN points out, some restauranteurs are considering simplifying things by eliminating tipping all together, in favor of higher menu prices. For restauranteurs still wondering about how to deal with the changes, your best bet is probably to find a good attorney or tax expert to help you ensure you are in compliance. What do you think, should the IRS leave tipping along, or is it time for America to move on? Let us know what you think via Facebook, Google+ & LinkedIn. Source:
Nations Restaurant News,
Huffington Post,
Image Credit (Flickr)
