Restaurants moving away from automatic tips for large parties - WFLA News Channel 8

Restaurants moving away from automatic tips for large parties

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The IRS is taking a bite out of automatic gratuities. An updated rule classifies the practice as a service charge, which means if a restaurant includes the tip, it now has to treat it as taxable income. So stores are now doing away with automatic gratuities because of the accounting nightmare. Reaction is mixed.

"You want your tip to reflect your bill." Lindsey Euing, a server at Sup Dogs finds the ruling unfair since servers aren’t paid minimum wage nationwide. 

“$2.13 an hour is $5 below minimum wage. It's not enough to live on if we just make tips.” The government says tips must be given voluntarily. But servers say automatic tips ensure large parties don't stiff them because serving them is harder.

"If there bill is $160 and we spent 4 hours with them, we might of gotten 4 or 5 dollars and that's not enough to compensate,” Euing said. 
Restaurants like Olive Garden, Longhorn and Red Lobster included automatic 18% tips on the bills for parties of eight or more. But not anymore.
A spokesperson for the company told the Wall Street Journal they experimented with the change before enacting it in all their 2,100 restaurants. The stores enacted a policy that list the suggested tip, rather than a mandatory tip. 

Sup Dogs in Greenville doesn't add gratuity to large parties very often, but says they understand the downsides of doing away with it.
“You know there are times when people try to hold on their cash a little bit. But if anyone hasn't worked in a restaurant, everyone works extremely hard, especially in a high volume restaurant like Sup Dogs,” Bret Oliverio said. 

The IRS views this as a way to crack down on under-reported tip income. But financial experts say with the shift from cash to credit, the new rule isn't necessary.
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