A tip that’s required is no longer considered a tip under new IRS rules — and that has caused a change for restaurants. Restaurants have had policies for years where they add an “automatic gratuity” or tip when they serve large groups.
Iowa Restaurant Association President, Jessica Dunker, says the IRS changes things at the start of the new year. “You can have an automatic gratuity — but then that has to be treated as a service charge,” Dunker explains. The IRS now treats a service change as worker wages from the employer. “And that means as an example, if you have worked more than 40-hours this week, what’s included in your wage is part of that service charge,” Dunker says. “So that the calculations for an employer become very difficult. In addition to that — a service charge — an employer has no obligation to give to the employee.”
While restaurants used to include an automatic gratuity of 20-percent or more for large parities, most now list a suggested but not mandatory tip for larger groups.