PLANO, Texas — A new law may force some restaurants to reconsider automatic gratuity, a practice that has become widespread to protect servers.
"People were not tipping the amount of work it takes to service a large group," said Jeff Pickering, a Plano-based C.P.A.
As of Jan. 1, the IRS has reclassified an automatic tip as part of the server’s wages. Jeff Pickering is a public accountant and he says he had several clients stop automatic tipping because it was too much work to process.
"Maybe some of the larger chains will have the infrastructure to manage this, but for the small restaurant, I think they will go away," he said.
Under the IRS ruling, Rev. Ruling 2012-18, a sharper distinction is drawn between tips and service charges.
Under the new rules, to be a tip:
- 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 negotiation or dictated by employer policy
- Generally, the customer has the right to determine who receives the payment
Automatic gratuities don’t meet these criteria. Pickering says all servers should be claiming all tips as income. That is not new.
“While the IRS change may have tax consequences for the restaurant, we expect most restaurants to continue this practice," said Richie Jackson, the president of the Texas Restaurant Association.
At Fino’s Italian Bistro, every night is a busy night. The owners have opted not to do automatic tipping and say their service should speak for itself.
"We make a little over $2 an hour as a waiter and the rest is based on tips," said Julie Hysenaj, a waitress. "So, you have to make sure you give good service and your tickets are high so you can get higher tips."