Tipping Etiquette: Included Gratuity Pros & Cons
One 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.
I predict you’ll be sick of all my comments by the time you are done with this segment on tipping. 😀
Anyhow, I think the idea of adding on an automatic 15 or 20% gratuity to all bills would be marvelous. Absolutely so. I always relish having parties of 8 or more and knowing that I get to tack on the gratuity; there are no worries that they won’t tip me properly.
Furthermore, I like the practice of receipts printing with what 15% gratuity is and what 20% gratuity is (I can’t remember which restaurant does this), to take the math off the customer’s shoulders. I actually starting writing what 15% was at the bottom of all my receipts until a manager prohibited me from it. I found that my tips totally went up during this time period. Some people just automatically always tip 5 dollars and figure it is fine… except on a fifty dollar check it is only 10%.
@ Vixen– sick of you? never. 🙂 The place that does that is Houstons which I think is great. However a search online shows that some people find it insulting.
Comes dangerously close, doesn’t it, to simply charging customers enough for the management to be able to pay servers a living wage.
Vixen: I love three things about your comment: 1. that you took the initiative & wrote in by hand the 15% calculation for your customers, 2. that management then curbed your enthusiasm after noticing you were doing this and 3. that your “tippage” actually went up during this time period. All wonderful hints of capitalism in action!
But that said, Mike: I still think I have to side with the pros of included gratuity. And while it rings of socialist order, I think it could be a better system.
Sad to say, when I was working behind the bar at a country club, the “powers that be” decided to collect and distribute the tips and gratuities (including the x-mas bonus…) they managed to pocket 20-30%
I’ll take cash and my own chances, never sneer at a stiff nor blush at a c-note, it’s all good in the end.
Be the Best.
d
I believe I covered why this on my blog before.
OK first prob with the service charge as its called for some is they can no LONGER complain about the service and get out of the charge. Its a part of the cost of the meal -failure to pay it is theft. Sure the chains will probably bend over backwards on this but the independents will act like they do now. Oh you didnt like item X ? why? Guest explains. Employee then explains to guest they cant fix the problem because the guest waited until the item was fully or nearly fully consumed to complain about. I also think the chains would find them being sued by their employs if service charges were reduced oir eliminated by mgmt because they are part of the cost of the meal. There is already a niche of lawyers suing restaurants over their predatory practices of dipping into pooled tips-look on the back page of any weekly freebie paper in the country -betcha there is an ad there. Chains might be able to get around this by handing out gift cert cards. End result chains will start firing staff over guest complaints of little to no merit on a regular basis. This will mean hard working staffers will get fired because someone is too cheap to pay for their meal-these folks are all to common when tipping is optional.
You mention restaurants paying their staffs real wages. NEVER happen. Period. Your a finance guy do the MATH. Server goes from $2.13 per hour to $7 something or more per hour. And the average serve makes more 40 hrs by $7 per hour so the wage will exceed min wage to get the staff to apply. Now the bus boy needs to be paid a full wage. They are paid by hour sub min wage, full min wage, flat rate shift pay and many other variants on this theme. Now they have to have wages booster to make them get legal min wage plus the tips they used to get from servers/bartenders. Hostesses who got tips from same have to get more in wages.
For those non business people bear in mind your business owner has to match employees social security and think medicare taxes paid to the federal govt.
Say a restaurant has 10 waiters on a shift.
10 X $5 per raise (NOT counting amt to replace tips exceeding fed min wage which they earn) thus each hour of a shift costs the restaurant $50 plus busboy wages plus all the tips replaced to tipped out employees PLUS increased taxes paid by the business.
Say the restaurant is open 11-9 and averages 10 employees on the floor at a time. Thats 10 hours per day 7 days a week. 10 servers X 70 hours operation X $7 (lets just assume the cost per hr in increased wages is this amt per hour)= $4900 per week in increased direct costs plus additional 8% or so taxes on those raised costs. Thats another quarter million in costs per year in an industry running on single digit profit margins when they make money.