When I dine out I have grown accustomed to giving a tip to my waitron in cash, directly. This action assures me that my money is going to the intended person. I also have a high suspicion about those Tip Boxes placed next to the cash registers unless the establishment has taken the time to compartmentalise according to each of their staff.
I know I am not the only one (by a long shot) who has a distrust of this service courtesy. In fact, the matter of what to tip and who gets what was even escalated to the UK House of Commons a couple of years ago. Andrew Percy, Conservative MP, called for a change in the laws that would allow restaurant staff to determine how tips are shared. Tips have become political.
My recent take out experience resulted in me looking into what local food delivery companies were charging automatically to online deliveries. This quick exercise was prompted when the delivery guy mentioned that the bill, for which I was paying cash, did not include a delivery fee or tip for him. I proceeded to show him the invoice on the app that clearly stated a Service Charge of R35. We entered into a short conversation about how the staff do not receive any portion of the Service Charge.
I told him that I would call the food delivery company and ask for clarity as to how they divvy up the proceeds from my order. Understandably, the gent was not in support of me doing this for fear of retribution. So, I didn’t call the company but I did do a search on all the food delivery apps on my phone and reviewed all the invoices. When invoices did not specify the breakdown I went onto their websites in search of answers.
Comparison of Food Delivery Charges
*Mr D Food either charged a R35 “Service Charge” or they added on a 5% “Tip” where promo codes or promotions offered Free Delivery.
Diners have been long time confused by the distinction between service charges, tips, gratuities and cover charges. This blogpost is my attempt to understand this once and for all.
A Service Charge, is an amount added to your bill before it is given to you and is almost always based on a percentage of the bill. Service Charges may be “discretionary” or “suggested” that means it is up to you if you want to make the payment or not. A Service Charge is deemed part of the eatery’s income, to be used as the restaurateur sees fit. According to the British Hospitality Association, there is no legal requirement for it to pass on any of the service charge, in full or part, to its staff.
Are restaurant staff disadvantaged by Service Charges because we assume that it is the same as a Tip?
A Tip is a voluntary payment given over and above the amount of the bill as a “personal reward” from you to serving staff.
I have also read that tips are usually paid in cash, whereas gratuities are payments made electronically through a card terminal. This eludes to cash tips being paid to individual employees, while credit card tips are paid to the restaurant.
Read on because Gratuities get a whole section to them self later in this article.
A Cover Charge is a fixed charge per customer that is usually mandatory. Mandatory charges must be clearly stated on bills and may even be included on actual menus.
According to a survey in the Caterer, 82% of those polled said that tips were shared among staff, while only 18% said they were allowed to keep tips given to them by customers they had served.
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Gratuity is a collectable amount for an employee, paid as a gratitude by the organization (public or government). It is also known as the end of service benefits in some countries (that has absolutely nothing to do with dining out). For example, an individual who has worked in an organization for a minimum period of 5 years is eligible for this tax-free benefit. (There are even online Gratuity Calculators such as this one where employees can go to calculate what they will get out at the end of their service with a company.) A gratuity payout is different to pensions and provident funds in India, where they also apply.
In the United States the clearest definitions I found were on the IRS website.
The Internal Revenue Service reminds employers that automatic gratuities are service charges, not tips. Employers should make sure they know the difference and how they report each to the IRS. So, what are tips?
Tips are discretionary (optional or extra) payments determined by a customer that employees receive from customers.
- Cash tips received directly from customers.
- Tips from customers who leave a tip through electronic settlement or payment. This includes a credit card, debit card, gift card, or any other electronic payment method.
- The value of any noncash tips, such as tickets, or other items of value.
- Tip amounts received from other employees paid out through tip pools or tip splitting, or other formal or informal tip sharing arrangement.
Certain factors are used to determine whether payments constitute tips or service charges. The absence of any of the following factors creates a doubt as to whether a payment is a tip and indicates that the payment may be a service charge:
- The payment must be made free from compulsion;
- The customer must have the unrestricted right to determine the amount;
- The payment should not be the subject of negotiations or dictated by employer policy; and
- Generally, the customer has the right to determine who receives the payment.
What are service charges?
An employer or employee’s characterization of a payment as a “tip” is not determinative. Again, the absence of any of the four factors listed earlier creates a doubt as to whether a payment is a tip and indicates that the payment may be a service charge.
Examples of service charges commonly added to a customer’s check include:
- Large dining party automatic gratuity
- Banquet event fee
- Cruise trip package fee
- Hotel room service charge
- Bottle service charge (nightclubs, restaurants)
Generally, service charges are reported as non-tip wages paid to the employee. Some employers keep a portion of the service charges. Only the amounts distributed to employees are non-tip wages.
Before you get bolshy with the waiter on your next dine out, please approach the discussion with sensitivity as you may put them in a difficult and awkward position. Thanks
With entire websites dedicated to explaining how to tip restaurant servers and other service people, you would think there would be a definitive, agreed-upon protocol.
Not even close.