In it’s seemingly stubborn trudge towards complete inadequacy, the federal government has mandated that all restaurants report automatic gratuity charges as service charges effective January 1, 2014.
What this means is that the automatic tips are now treated as taxable wages, and face a more rigorous accounting and taxation process. This process, if undertaken, stands to raise overhead for restaurants because of compliance costs.
Not surprisingly, most Maine restaurants are unable or unwilling to incur those costs. To avoid them, they are doing away with the automatic charges that are typically assigned to larger parties.
Problem solved, right? Wrong.
The thing about those automatic gratuity charges is that they are really important to a server’s livelihood. People who haven’t spent time in the industry might not realize it, but those larger parties can be a complete pain in the tail. They require a lot more time and effort, plus they typically linger a lot longer after the check drops which keeps the server from seating new tables.
To put it simply, without the automatic charge a server can take a big hit to their payout for having to work a lot harder and for less appreciation if they get a big party that tips poorly.
DiMillo’s Restaurant, among Portland’s most iconic, successful, and locally supported establishments is one of many that values their hard working employees and is taking steps to encourage diners in large parties to tip fairly.
I spoke with Nick DiDonato, winner of DiMillo’s 2013 “Server of the Year Award”, about how the change is affecting him and his co-workers. He told me that when they get large parties, rather than including the automatic tip, the bill will have a guideline for suggested tips to make the math easier for the customer.
Many restaurants will suggest 15%, 18%, and 20%. The customer can simply look at the bill and see what each percentage would amount to in regards to their total charge. They can then choose to follow the guideline or tip a different amount, whatever they feel is fair. It’s a subtle sales tactic that helps to level the playing field a bit.
“DiMillos was great by only putting the 18% and 20% suggested gratuity on the bill,” explained DiDonato, “They know it’s hard for us, but at the same time it’s the law so we know it’s not them trying to punish us.”
He knows that not every restaurant takes as many steps to help their employees, “I work at a pretty awesome place. I know some places aren’t including the suggested amount on their bills at all, hopefully they’ll figure a way to deal with it so it works for everyone.”
The problem is, without the automatic charge a server’s income becomes more reliant than ever on their customer’s versions of fairness.
DiDonato explains, “You can wait on a party of any size, have everything go great, they tell you it was all wonderful, and then leave you a 10% tip. Having a big party and a guaranteed gratuity can make the difference in paying your rent on time.”
He thinks that spreading awareness is the best thing to do, “getting this sort of coverage, getting the word out, that’s a big step towards addressing the change.”
The IRS is saying that the reason for changing the law is to crack down on unreported wages that stem from cash tips. To me it seems an unnecessary measure that thoughtlessly and negatively effects hard working people.
But what do I know.
Every summer I see million dollar sailboats and yachts with names like “Moderation”, “Serendipity”, and “Loophole” all over Portland Harbor. Almost all of them are registered in offshore tax havens by extremely wealthy Americans.
Maybe if the government focused more of their “crackdown” efforts on people like them, they could stop interfering with the livelihoods of people like Mr. DiDonato and so many other hard working, blue collar Mainers.
Tip your service workers people.