Even with automatic tipping, customers have always faced a decision over how much to leave a server. Now, thanks to an IRS ruling, restaurants are being thrown into the debate — and are faced with a decision of their own: Should tipping for large parties be left to the customer or should the restaurant tack it on to the bill?
The IRS ruling, which takes effect in January, will treat automatic gratuities as service charges, rather than tips. The switch means servers will no longer be responsible for reporting those automatic tips as income. And it also means automatic gratuities will be considered a part of a server’s wages, making that money subject to payroll tax withholding and delaying receipt until the next paycheck.
Understandably, many servers aren’t happy about the tax policy, but neither are restaurant owners. The change will create additional accounting and bookkeeping work, because automatic gratuities will have to be factored into hourly pay rates that could vary depending on the number of large parties served by the employee.