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How is the New Restaurant Tip Law Affecting Servers?

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Photo:cali2okie/Flickr/Creative Commons License


Watch the California Matters episode on fair restaurant wages here.

As I previously mentioned, January 1 was the big day when a whole bunch of new food-based laws went into effect. One of the new federal laws was this little ditty, which now forces restaurants to view tips automatically added to restaurant bills -- generally used in cases when six or more diners sit together -- differently. In short, now the tips are:

[T]axable as regular wages and subject to payroll tax withholding, which means your server won't see those tips until payday instead of taking it home as cash.

To find out how this new quirk in the tax law is going to affect the ever-harassed population of restaurant workers, I called up a couple of servers to ask how their establishment is handling this.

Lena, who works at a posh restaurant that's part of a big corporation on the West Side, says her restaurant simply got rid of the automatically-added gratuity. "We just did away with it entirely," she says. "I think it's because we're a national corporation, but I'm not entirely sure."

Over in Silver Lake, the news is roughly the same. Janine, who works as a bartender/server at an independent posh-ish restaurant -- read: a trio of dollar signs on Yelp -- says that the business made the same switch. "Because of the payroll headache this new law is creating, we are no longer allowed to 'grat' big parties," she says.

This is a much bigger problem than it seems for restaurant workers, as people aren't exactly on their mathematical game after inhaling a couple of bottles of wine. "People underestimate what they've consumed and throw too little into the pile," says Janine. "Inevitably one person has to be sober enough and take charge of the bill, and consider the server as well as the friends."

This was the problem that automatic gratuity was supposed to solve. It was meant to protect the worker from spending a few hours running around for a large party, only to be stuck with a dollar tip at the end of the night. Now, with the new law, restaurants are simply voiding the concept. But is that going to make that big of a difference?

"Automatic gratuity protects me from getting bad tips," Lena says. "But mostly, it tends to all even out over the course of the year. Last week, I had a table where I got a dollar on a bill of $99. And this is a high-end restaurant. That's not typical. But, then I go and get 30 percent tips. So I would say, over the course of a year, I still end up making 15 to 18 percent, averaged out."

Another possible problem is the growing pains that come with any change in policy. For years, the norm has been the tip added to the end of the bill. "Most people assume that if they are with a group that the tip will be included," says Janine. This isn't a problem when you explain the new situation to every diner, but it's not realistic to have the time to deliver that message 100 percent of the time. "I expect we will end up losing some money."

Another angle to consider is that servers will no longer be walking out of restaurants with pockets of spending cash, a lifestyle change that may take some getting used to. "Sometimes the money I make goes directly into the ATM on the way home to pay bills," says Janine. "So waiting two weeks for part of those wages would definitely be a problem."

As with most new laws, it's good to reserve any instantaneous judgement while it's still in the honeymoon phase. It will, no doubt, take some getting used to. But there are ways to make the growing pains a little easier. "Please use your phone calculator," urges Lena.

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