Last Word on 20 Percent

I’m looking out the window and checking the radar and worrying about tonight’s production at Shakespeare Dallas, speaking of really eating out. (One of our weather adepts should post a map.)

But one more thing on the restaurant issue. A legal FBvian who works with such establishments and owns part of one says that there are good reasons for the bank/restaurant adding the still-imaginary tip:

You run up a bill of $150 for a nice meal. You present your debit card, and you actually have in your account the mighty sum of $160. The bank okays the charge because you have more than $150. Being a generous fellow, you leave a $25 tip, making the actual amount of the charge $175, and you leave the restaurant. One of two things happens. The bank then declines the charge because you don’t have $175 available, and the restaurant is stiffed for the full bill (and tip). Or, the bank okays the charge and whacks you for an overdraft fee.

So it protects both the restaurant and the dope who spends all the money he has eating out. But there’s more, this time on the matter of gratuities themselves, and there’s wisdom in it:

There is at least some support for the notion that gratuities are required. The IRS certainly takes that view. Restaurants have to file returns relative to tip income, and servers have to report tip income. The IRS assumes that all servers make some percentage of revenue in tips (that percentage is somewhere above 5 but below 10%). When restaurants do their return, they typically report whatever tips are reflected on credit/debit card receipts plus some percentage of all other food/beverage revenue. If the diner pays for a meal in cash and opts not to tip, you’re really stiffing the waiter twice because both the restaurant and the IRS will assume that the waiter received some amount of tip on that ticket.

I grant you that tipping is a messy business, and the percentage of the tip seems to be growing (didn’t it used to be 10%, 15%). Having said that, the tip does give the customer a bit more control over the scene. You can reward good service, or penalize poor service. You can have some level of certainty that the person you’re rewarding will get the benefit of the reward (leaving aside the issue of how different places split tips among the staff). The alternative — to include the cost of service in the price of the meal — likely will result in restaurant owners making more and wait staff less. Were tipping to be outlawed tomorrow and wait staff required to earn at least the same minimum wage that everyone else gets (and not the $2.13/hour they now get because they get tips), I’d suggest that all restaurants would instantly increase prices by 20% to reflect the “service” component, but that almost none would pass that 20% through to the staff.

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