Restaurants, Gratuity, and Mandatory Tipping

American tipping customs are deeply ingrained in most of us who regularly eat out, with most diners adding 15 to 20 percent to their total ticket automatically as a tip. In addition to being a reward for good service, it's also seen as a necessity by some, since wages for servers are typically much lower than the standard minimum wage. While few people dine out without leaving a tip, it is optional, a freedom many people value. With mandatory tipping becoming more common, some diners are resisting surrendering that freedom.

Beyond just upsetting some customers, the practice garnered the attention of the IRS a few years ago. The federal tax agency ruled such automatic gratuities are service charges¹, which must be handled differently than tips.

More Means Mandatory

In the past, it was not unusual to see mandatory gratuities added onto checks for large parties, usually those of six or more. The most common reasons cited for doing that include that large parties tend to linger longer and often divide checks in ways that cause confusion about who will leave the tip. These parties also often need more attention than multiple smaller tables would, with those duties sometimes needing to be split among two or more servers.

Adding mandatory gratuity to these checks ensures that servers handling those groups do not lose out on income that might have come from the multiple smaller groups they might have been able to handle if the large party wasn't there. In a twist on the norm, one New Jersey diner² has been charging only teens a mandatory gratuity, citing their tendency to hang out for long periods and under-tip their servers.

In recent years, this mandatory gratuity practice³ has been adopted by hotels, cruise lines, and for smaller parties in some restaurants. While the built-in tip can be helpful in some areas, like those that see a lot of international travelers who are unfamiliar with American tipping customs, it rubs some diners the wrong way.

How Mandatory is Mandatory?

Because some diners feel the gratuity should be completely optional and based entirely on the level of service they receive, they feel cheated when gratuity is calculated for them and added to the check. Much of the anger about the practice is due to what consumers see as a sneaky practice, with the gratuity being added without the customers realizing it. In many cases, these customers end up paying another 15 to 20 percent in gratuity on top of the total, not realizing until later if at all that they double tipped.

While a mandatory gratuity is often noted on the menu and on the receipt, customers claim the print is often too small or hard to read on those notations. That's essentially the argument being used in a class-action lawsuit⁴ against some restaurants in Times Square. The defendants claim the eateries did not properly disclose their mandatory tipping practices, highlighting the importance of restaurants making certain their tipping policies are clearly explained to customers.

References

1. Tips Versus Service Charges: How to Report. IRS. Accessed September 2021.
2. Only teenagers charged mandatory gratuity at this Jersey diner. New Jersey 101.5. Accessed September 2021.
3. When you leave a tip – whether you want to or not. The Washington Post. Accessed September 2021.
4. Manhattan restaurants secretly adding tips to bills without customers' knowledge: lawsuit. NY Daily News. Accessed September 2021.