The BillOne of my favorite things about dining abroad and in high end restaurants is the fact that service is often included. It’s a refreshing change of pace to reach the end of a fine meal, hand over a credit card and be done without having to bother with math. Sure, I work with spreadsheets and write for a personal finance blog in my spare time, but seriously there are times I just don’t want to deal with figuring out payments. But is it really practical to do away with gratuity? Lets look at the pros and cons.

Pros

It would neatly alleviate any question of how much to tip on alcohol, tax, desserts, freebies etc. Interviews with restaurant owners and employees regularly show that the disbursement of tips vary wildly between establishments and opinions on what is proper even more so. Etiquette books like to think they provide some standards but tipping is a custom, not a law, and only enforceable insofar as it is commonly understood. If instead of adding gratuity, a restaurant just added 20% (or whatever upfront, there would be no confusion… And no post-dinner sticker shock when the bill arrived.

Second it would relieve waiters and the IRS of the nightmare of accounting for unrecorded cash transactions and ensure taxes were paid appropriately. If you’re a server with poor sales you’ll be taxed accordingly, as will servers who make bank. Not to accuse all service professionals of taking their cash under the table, but those who do create a problem that ultimately impacts their fellow taxpayers.

Universal included gratuity could potentially reduce the cost of service overall. For every big tipper there’s another table who stiffs their waiter. In order for servers to receive wages appropriate to their respective establishments, some people are expected to tip more than necessary to average it out. With an included gratuity, the actual “service tax” could be lower than 20% since everyone would pay their fair share.


Uniform gratuity also ensures equal service for customers who (rightly or wrongly) may be seen as potential bad tippers. It would also mean that servers could be less competitive over “prime” tables.

Cons

The biggest concern would be service. Without the incentive, would servers be as motivated to be cheerful and attentive to their customers? Some studies say there’s only a weak correlation between tips and good service, and thus a weak incentive. I think most people who work for tips still strongly feel that good efforts are rewarded more generously. Still, I’m not convinced people need direct incentives to provide good customer service, so much as good management. Customer service can vary tremendously between companies (think Amazon vs. the phone company) but the issue is how they’re run rather than monetary compensation from the customers.

Tax accountability is a double-edged sword. If the service charge is added to the bill or included in the cost of goods sold, it’s likely liable to a sales tax like any other line item. Depending on how a restaurant does its accounting, you might be paying more than you would for a cash transaction. In effect, this just increases the cost of gratuity for the customer with no benefit to the waiter or support staff. I’d rather do math.

Also there’s a sizeable chunk of people out there who enjoy tipping. On tipping forums some will proudly proclaim to tip 30% standard. Included gratuity would not dissuade these individuals from their magnanimous ways and given enough time to make the rest of us feel cheap, we’d be right back to people thinking an additional 5% is only polite… on top of standard service charge.


If restaurants were forced to increase the cost of their food to actually pay their employees like regular businesses, the income for waiters would plummet. High-end places can afford to include gratuity because their customers don’t care if a $40 entree really costs $48 and see the addition as a convenience. Any restaurant that prices its food $9.99 instead of $10 is trying to make the cost of the food seem lower on the front end. If they were forced to raise prices, it wouldn’t be 15-20%. From a simple economic perspective the quality of service would probably fall as more capable individuals would seek employment in other fields.

There’s obviously a lot of differences in how restaurants handle adding gratuity. Houston’s, for instance, just does the math on the bottom of the receipt and leaves it up to the customer… while not-so-subtly reminding them what customary gratuity is. Other establishments refuse tips outright, while most just add the tip separately at the end. But what do you think? If you were running a restaurant, working in one or eating there– which system would you want in place?


When not scratching his head and trying to split a bill with 18% included gratuity for a party of eight, half of whom are paying by credit card, Mike writes Broken Cupid, a dating blog for gay men.