Tips. They’re so ingrained into our daily lives as Americans that we forget how complicated the process really is, and how many ways there are to trip up. But for restaurant workers, tipping is essentially their livelihood, and making an error — whether as a consumer or an employer — could determine whether a server makes ends meet that month or not.
As a show of support for restaurateurs and their employees, especially while they navigate the muddy waters of compensation this election year, we’ve compiled seven common questions about the nature of tipping in American restaurants today.
What’s the standard tipping rate at restaurants today?
Well, the Emily Post Institute provides the following recommendations for diners:
- Sit-down restaurant servers: 15-20%, pre-tax.
- Buffet servers (where drinks are delivered): 10%, pre-tax.
- Host or Maitre d’: No obligation.
- Take-out: No obligation.
- Delivery: 10-15%.
- Bartender: $1-2 per drink or 15-20% of the tab.
- Valet: $2-$5.
These amounts will vary widely, of course — and not just from person-to-person, but across regions and from segment to segment of the restaurant industry. The more expensive the restaurant, the higher the expectation for tipping usually is. But of course, in those instances, the expectation for quality service in those instances is much higher as well.
According to a recent Zagat Survey, the average gratuity in city restaurants across the United States is about 18 percent.
Who gets to share tips?
This is much less open to interpretation. Under Federal Labor Law, only front-of-house employees (servers, bartenders, bussers, food runners, hostesses, etc.) are eligible to receive and share in tips. Back-of-house employees (line cooks, dishwashers, janitors) cannot legally receive tips.
Most restaurants run on an individualized system for dividing tips, i.e. each server retains the tips for their particular tables in a given night. This encourages servers to give every table their all and provide exceptional service in hopes of receiving a larger tip. The alternative is pooled tips, a team-based model, where every employee’s tips go into a shared fund and are distributed to servers equally.
Both of these models only really account for tipping the server as chief point-of-contact for the restaurant guest. How restaurants expect their servers to split up their gratuity among the support staff, however, is up for interpretation. One popular model recommends the following distribution of the total tip amount given to the server:
- 13% to the bus person
- 10% to the bartender
- 7% to the expediter
- 5% to the host/maitre d’
This leaves almost two-thirds of the original tip amount for the servers themselves.
Who’s on the hook for reporting tips to the IRS?
As an employer, you are required to report all wages and deductions for your employees to the IRS, and this includes tips. It is recommended that you use one of the following to track tips for reporting purposes:
- Your point-of-sale (POS) system for both credit card and cash tips;
- A custom tip report for all cash tips; or
- IRS Form 4070A “Employee’s Daily Record of Tips.”
At the end of every year, employers with 10 or more employees must file IRS Form 8027 “Employers Annual Information Return of Tip Income and Allocated Tips”, summarizing restaurant total sales, total charged sales showing charged tips, charged tips, and total tips reported by directly and indirectly tipped employees. This is where insisting that your employees keep accurate records and report their tips faithfully becomes critical.
The form is organized to highlight shortfalls, where reported tips fall below 8% of gross receipts. If that occurs, you, as the employer, may be responsible for making up the shortfall on your tipped employees’ W2 forms.
Suffice to say, encouraging 100% honesty from your tipped employees about their cash earnings is in your best interest as an employer.
Do set gratuity amounts lower tipping?
While no one is legally required to tip separately for service, American tipping culture has thrived for so long that it was once even considered “un-American” to advocate against it. Despite that, Americans typically do not care for being told how much to tip, with 95% preferring to make their own decision over a more European-style service charge automatically added to the bill.
It’s not uncommon for restaurants to include a service charge (often 18%) to bills for parties of 6 or more, ostensibly to ensure the server gets compensated properly for the extra effort necessary with larger parties. And this charge, unlike most tips, is mandatory if listed in advance on the menu or other printed notice.
But what if you have a clientele that may be inclined to tip more than 18% (whether because it’s their general inclination or because service was so extraordinary)? You may be cheating your staff out of additional hard-earned cash.
In cases where a flat tip is already included in the bill delivered to these larger parties, make sure the line for additional tip is still available on the final signed receipt. It won’t necessarily guarantee a larger tip for the server, but it can provide a cue for those who embrace opportunities for generosity.
How do I encourage greater tipping?
Three words: make it easy.
It doesn’t seem like it should be a big hurdle, but even the most astute diners can have trouble with calculating tips. One solution can be investing in user-friendly point-of-sale technology to encourage tipping that doesn’t require mental gymnastics or a calculator.
Customers that are able to use iPads or other POS systems located directly at the table can often select tip amounts in preset increments (for instance, 15, 20, or 25 percent) to leave when they pay by credit card. No math, no fuss, and your customer is less frustrated by the process.
But that’s not all an automatic interface does. According to research from Software Advice, 29 percent of customers surveyed say they would be more likely to leave a tip if required to press a “no tip” button to leave $0. The psychology behind the interface clearly matters.
So, does a table-side electronic payment system encourage a larger tip by virtue of ease? Results seem to say so, although it may not be strictly because of a one-touch button. Servers who don’t need to spend as much time dealing with the check can devote more time to making sure the customer experience is a positive one. The more positive a customer experience, generally, the larger the potential tip.
And while 86 percent of diners express a preference for entering their own tip amount — rather than allowing a server or cashier to do so on their behalf — 41 percent of consumers surveyed say close physical proximity to the server/cashier while entering a tip amount “probably” or “definitely” increases the likelihood that they will tip.
A table-side POS system isn’t meant to replace server touches, but merely redirects them into more meaningful exchanges. The server’s obligation to close-out the dining experience doesn’t go away when the check is otherwise handled.
Won’t my servers make more money if I remove tipping and raise their pay?
This is a really complicated question and one that many restaurateurs right now are struggling with nationwide.
On the face of it, it may seem like the base wages servers make at full service restaurants put them at an extreme disadvantage economically. The Federal minimum cash wage for employees who make more than $30 a month in tips is currently $2.13 per hour (although this number can be radically different state-by-state), $5.12 less than minimum wage for other employees. However, if an employee does not make the equivalent of $7.25 per hour in base wages plus tips, the employer is legally required to increase cash wages to compensate.
But, according to the National Restaurant Association, servers nationwide average $12-$17 per hour in tips alone, alongside $4-$5 per hour in wages. These are median figures, so servers at busy or upper-end restaurants can be bringing home wages much larger than the flat $12-$14 per hour wage some restaurateurs (who have removed tipping) are instituting for their establishments’ front-of-house staff.
Like anything else, whether your servers will make more or less take-home pay if tipping were removed and wages increased depends largely on your clientele, business volume, and the quality of your staff. There doesn’t yet seem to be a one-size-fits-all answer to the question of no-tipping.
How do I discourage tipping if I do raise my server pay and prices?
If you do move toward paying a flat wage to front-of-house employees, eliminating tipping, and raising prices on your menu to compensate, managing customer expectations with respect to these changes will be critical. Sticker shock alone could be off-putting for regular customers coming in to find the prices of all of their favorite dishes raised 15-20%.
But more importantly, being upfront with your new model will minimize confusion when the final check comes for signature and there’s no additional line for tipping. If not properly informed, most customers would likely inquire, and many may take it upon themselves to unnecessarily leave cash on the table — and walk out frustrated that they couldn’t simply add a tip to their bill.
Printing a notice in your menus, on table tents, or at the bottom of your daily special insert that you have moved to a no-tipping model should take care of most inquiries.
That said, prepare your servers with answers to questions about tipping, about why the restaurant owners felt it was important to implement the change, and how they offset the costs associated with higher wages for the employees in the process. Not everyone who asks will want to hear more than, “We’ve included the value of a tip in our base prices for your convenience. No extra amount necessary!” But since this is such a new phenomenon for American diners, it’s better to be prepared.
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