Automatic Tips May Be off the Table at Some Restaurants
If you’ve dined out in a big group, chances are you had an automatic tip tacked on to your bill.
That practice might soon go away.
Orlando, Fla.-based Darden Restaurants may drop automatic gratuities for tables of eight or more at its chains including Olive Garden, Red Lobster and LongHorn Steakhouse.
Experts predict others will follow suit. An Internal Revenue Service ruling will treat automatic gratuities as wages. That could lead to higher payroll taxes for restaurants and make record-keeping more complicated.
The change means customers will get to decide just how much to shell out for service instead of paying a flat amount of 15 to 20 percent.
That makes some diners happy, including Mark Puig of Orlando. The 42-year-old, who makes a living selling on eBay, said he thinks automatic tips allow “servers to be lazy when they have larger tables.”
But servers say no matter how good the service, they could end up with less money in their pockets if they’re stuck with a table of tightwads.
Automatic tipping “protects the server in a lot of ways, because a lot of time and energy goes into those parties,” said David Hayden, a Kansas City, Mo., waiter who has written a book on tipping and runs websites about the restaurant industry. “There are too many times when you can really end up in the hole waiting on a table because they didn’t leave an adequate tip.”
For now, Darden has dropped 18 percent automatic tipping at about 100 restaurants.
But it also has started suggesting tip amounts on receipts. Each bill spells out exact amounts for tips of 15, 18 and 20 percent.
Darden, the world’s largest casual-dining restaurant company, will decide by year’s end whether to get rid of automatic tipping entirely. The IRS ruling goes into effect in January.
“We’re testing this change in an effort to determine the best way to preserve tips for our employees while following the IRS’ guidance,” spokesman Rich Jeffers said in an email.
Darden would not discuss how the recent IRS ruling would affect the company financially.
But for restaurants in general, it “is potentially a dramatic challenge to company profitability,” Boston University hospitality professor Chris Muller said in an email.
And automatic tips also leave restaurants open to legal challenges from workers over pay, employers’ attorneys said.
“I think restaurateurs and businesses are just throwing up their hands and saying ‘We can’t … afford the risks,’” said Carolyn Richmond, a New York attorney who represents hospitality employers.
Earlier this year a customer sued several restaurants, including Olive Garden and Red Lobster, for charging automatic gratuities for even small tables in New York City.
Jeffers said that’s a common practice for eateries in Manhattan, where three Darden restaurants automatically charge gratuities for everyone because many tourists there don’t tip well.
Several other companies — including Outback Steakhouse owner Bloomin’ Brands, Ruth’s Hospitality Group and Buca di Beppo—- wouldn’t discuss their practices.
At Walt Disney World, 18 percent tips for parties of six or more at restaurants are written into the attraction’s union contract.
But Andy Gross, who owns several Buffalo Wild Wings franchises in Orlando, doesn’t allow them.
“As a consumer, I’ve always hated them,” he said. And “knowing this (IRS ruling) was coming … was just another reason not to put a gratuity policy in place.”