To tip or not to tip

3 min read

Restaurant and Foodservice

Tipping has been a hot topic lately, from pending IRS rule changes that put more of the tax onus on employers when restaurants charge automatic gratuities to the question of whether it’s time to rethink the entire tipping custom.

A new IRS rule has Darden-owned chains including Red Lobster, Olive Garden and LongHorn Steakhouse reconsidering their practice of automatically tacking tips onto tables of eight or more, the Orlando Sentinel reported earlier this month. Starting in January, the IRS will treat the tips as taxable wages, potentially complicating bookkeeping procedures. Darden’s eateries have thus far dropped the practice at about 100 locations, replacing it with suggested tip amounts and notes on the check that calculate the amount of 15%, 18% and 20% tips, the Sentinel reported.

The IRS change isn’t that radical, the Pennsylvania Restaurant and Lodging Association’s Melissa Bova told CBS last week. “When a server gets tips anyway, they have to submit it and pay taxes on it as well, so really it’s just saying who’s going to be submitting the taxes — the business or the server,” she said.

Those automatic gratuities proved problematic for Red Lobster and Olive Garden in another way recently when, along with Applebee’s, the chains were sued on claims that the eateries added the tips onto checks for smaller parties at some of their New York City locations. State law prohibits restaurants from charging the tips on parties smaller than eight, as Benzinga reported earlier this summer.

As chains debate doing away with the large-party tip, a handful of others are praising the practice of paying workers more in wages and getting rid of tipping altogether. The owners of Sushi Yasuda in New York City sparked a renewed debate on the whole topic of tipping with recent stories on the restaurant’s decision to follow the Japanese tradition of paying workers a higher salary and banning tips. And restaurateur Jay Porter recently wrote a piece in Slate on his six years running San Diego’s Linkery without tips. Porter contends that replacing tips calculated at the customers’ whim with a set 18% service charge that was shared with back-of-the-house staff drove improvements in both food and service.

In a separate Slate piece, Brian Palmer makes the argument for abolishing tipping, citing studies that show the amount of the tip has less to do with the quality of service than with a whole host of other factors including whether the server draws a smiley face on the check. More seriously, the practice may perpetuate negative racial stereotypes, he writes.

Others say tipping is still the best way to incentivize servers, including celebrity chef Donatella Arpaia, who said summers spent in Europe while she was growing up convinced her that the U.S. system makes for better service, she told NBC Today.

Do you charge automatic tips on large parties? Will you change the practice in light of the new IRS rules? Tell us in the comments.

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