IRS changes large party gratuity policy

News Reporter

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Paige Anderson, Texas State alumna, prepares to serve food to customers Feb. 4 at Chili’s. Waiters will no longer receive automatic gratuity on groups of six or more due to an IRS ruling that went into effect Jan. 1.

San Marcos restaurant waiters are beginning to feel the effects of an IRS ruling that is changing the way automatic gratuity is calculated into the paychecks of those who serve large groups of customers.

Under the ruling enacted Jan. 1, parties of six or more customers are now able to decide how much to tip without having gratuities automatically included in their checks as a percentage. Restaurant owners are still able to grant automatic gratuities on large parties, but they are now classified as service charges with different implications.

Glen Garey, general counsel for the Texas Restaurant Association, said waiters and waitresses have to pay taxes on any service charges since they are now a wage factored into paychecks. Prior to the ruling, servers received tips after the customers paid their bills without having to wait for their paychecks, he said.

According to the agency’s website, the ruling lists four criteria a tip must meet to be considered a gratuity. The amount paid must be free from compulsion of the restaurant, the customer must be able to determine the amount paid, the payment cannot be negotiated and the customer has the right to determine who receives the tip.

“A lot of servers would rather have an automatic gratuity in the (customers’) check, at least for large parties,” said Cody Lewis, a waiter at the Chili’s in San Marcos.

When automatic gratuities are counted as a service charge, it complicates the record-keeping process for employers, Garey said.

“This will probably have an effect on small, family-owned restaurants,” Garey said. “It makes it too much of a pain to tack on a mandatory gratuity.”

Norman Conley, a manager and bartender at Sean Patrick’s Irish Pub and Texas Grub, said the restaurant decided to become one of many in San Marcos that no longer include an automatic gratuity on the bills of larger parties. Conley said the new service charge classification is “an accounting nightmare.”

“We took a poll here among all the waiters and waitresses, and we decided to get rid of mandatory gratuities,” Conley said. “What we’ll do now is include a suggested tip of either 15 percent, 18 percent or 20 percent, but customers can pay what they want.”

Saltgrass Steak House and Chili’s are among the chain restaurants that will offer a suggested gratuity for parties of eight or more people.

“(The suggested gratuity) helps waiters because they get the tip that night,” said Scott Parish, manager at Saltgrass.

For several years, Chili’s has included a suggested tip on the check of large parties, which is “purely a suggestion” according to a statement from a Chili’s Grill and Bar spokesperson.

“Half the time customers tip appropriately, and the other half they don’t,” Lewis said. “Sometimes people see the suggested gratuity and assume that it’s included in the check, but it actually isn’t. And the waiter doesn’t get a tip at all—not because the customer doesn’t want to tip, they were just confused.”