Mandatory tipping

Mandatory tipping (also known as a mandatory gratuity or an autograt^[1]) is a tip which is added automatically to the customer's bill, without the customer determining the amount or being asked. It may be implemented in several ways, such as applying a fixed percentage to all customer's bills, or to large groups, or on a customer by customer basis.^[2] Some economists have argued that tipping is economically inefficient, and suggested that mandatory gratuity might solve some of this issue.

General discussion

Some bars in New York City's borough of Manhattan have instituted mandatory tipping. Mandatory tipping is considered an oxymoron, as tipping is by definition a voluntary act on the part of the customer.^[3] The BBC has reported that some find the practice bothersome; particularly those who are not aware that the tipping is used to subsidize the sub-standard pay at the workplace.^[4] One waiter in London, England has criticized the low wages to the popular press.^[4]

Mandatory tipping and voluntary tipping are illegal in some cases: Australian casino employees,^[5] and US government employees, for example. Tipping is not generally part of Japanese culture, and can be confusing or offensive.^[6] Tipping in China is frowned upon, except for those living in the semi-westernized regions of Hong Kong and Macau.^[7]

Slightly less authoritative sources are appellate court decisions, with the U.S. Supreme Court at the top. Appellate courts regard mandatory gratuities as income for servers rather than a tip, thus affecting taxation. However, court cases have yet to set a precedent that failing to pay "mandatory gratuity" is illegal. ^[8]

Restaurant customers who pay the food portion of their bill but not the mandatory gratuity have at times been arrested, charges are generally dropped.^[9][10]

Some cruise lines charge their patrons $10/day in mandatory tipping; this does not include extra gratuities for alcoholic beverages.^[2]

Judith Martin in her 2005 manners book opines that fast food restaurants will never charge mandatory tipping for their customers, despite the presence of tip jars,^[11][12] and considers tipping for non-table services to be inappropriate.^[11][12]

Ian Ayres, Fredrick E. Vars & Nasser Zakariya published a paper suggesting that tipping contributed to racial prejudice, since ethnic minorities would often be less able to pay a large tip. Another paper by Yoram Margalioth of Tel Aviv University argued that there was a negative externality associated with tipping, and that the practice facilitated tax evasion.^[13] Two other American studies have contributed to the thesis that tipping is racially discriminatory, finding that ethnic minority servers and taxicab drivers received lower tips on average than their white counterparts. In the study of the servers, an attempt by the author to isolate other possible contributing factors, such as poor service, found that "After controlling for these other variables … the server race effect is comparable across customer race."^[14]

Labor laws

Canada

Quebec and Ontario allow employers to pay lower minimum wages to workers who would reasonably be expected to be receiving tips.^[15] In Ontario, the minimum wage is $10.25 per hour, with exceptions for students under 18 years old and employed for not more than 28 hours a week, who are paid $9.60 per hour; and both liquor and restaurant servers, who are paid $8.90 per hour.^[16] On April 13, 2010, the Toronto Star reported since 2009, it has become common for restaurant servers to give part of their tips to the business they work for.^[17]

Workers who receive tips are legally required to report the income to the Canada Revenue Agency and pay income tax on it. In Quebec, the provincial government automatically taxes servers 8% of their sales whether a gratuity was received or not. In other provinces, however, many workers have been known to report no income from tips at all or, perhaps more commonly, to "lowball" the figure. In response, the CRA has said that it will closely check the tax returns of individuals who would reasonably be expected to be receiving tips to ensure that the tips are reported realistically.^[18]

According to guidelines established by the Canadian Restaurant and Foodservices Association, autograts and any tip pool controlled and distributed by the restaurant is legally subject to income tax and other mandatory deductions before being paid to the servers. All other gratuities are deemed direct tips and it is the server's responsibility to declare them as taxable income when filing for income tax.

References

Further reading

• Authoritative Revelations on Tipping: Guidelines and Solutions - Edwin F. Jablonski, Barbara R. Wohlfahrt - Google Books
• Business Modeling: A Practical Guide to Realizing Business Value - David M. Bridgeland, Ron Zahavi - Google Books