Tip Basics August 3, 2023 4 min read

Tips vs Service Charges in Restaurants

Tips vs Service Charges in Restaurants

Curious about whether a gratuity service charge was added or if you should be tipping after dining in a restaurant?  Fear not, as TipHaus is here to guide you through the intricacies of restaurant billing, helping you make informed decisions to avoid any awkward tipping dilemmas when it comes time to pay the bill. 

What Is A Tip? 

A tip, commonly referred to as gratuity, is a voluntary payment left to your server at the end of your dining experience. The customer determines who receives the payment, and it is not dictated by any policy. We leave tips to show our appreciation for the servers’ hard work and attention to your table when dining out. The customary tipping rate is 15%-20% of the pre tax bill, and even when the service is poor the recommended rate is 10%. How much you leave your server is of free will, but it is ultimately a way to acknowledge your gratitude towards the service received. 

However, despite tips being the primary source of a server’s income, most every restaurant has their own methods and guidelines towards tipping. The larger the staff count, the more complex and challenging the guidelines become.

How To Leave A Tip: 

According to the IRS, tips include:

  • Cash tips received directly from customers.
  • Tips from customers who leave a tip through electronic settlement or payment. This includes a credit card, debit card, gift card or any other electronic payment method.
  • The value of any noncash tips, such as tickets or other items of value.
  • Tip amounts received from other employees paid out through tip pools, tip splitting, or other formal/informal tip sharing arrangement.

What is a Service Charge?

A service charge is an additional fee added on top of the bill, usually to cover the cost of various services provided. This fee is mandatory and will be included in the total cost. The employer requires customers to pay service charges for a variety of reasons such as: 

  • To account for the rising prices of cost of goods
  • Large parties and automatic gratuity 
  • Event fees
  • Credit card fees
  • Operational costs 

Unlike leaving a tip, which is at the discretion of the customer, the path of a service charge is determined by the restaurant’s management. Service charges usually contribute to the restaurant’s revenue, and most often do not count towards the server’s tips at the end of their shift. If the fee is intended for the server’s benefit, such as when an automatic gratuity is added to bills for larger parties, you can expect to find clear indications of this on the menu or directly on the bill.  

One of the main concerns customers have is whether they should tip on top of the service fee. Here at TipHaus, we always believe in leaving an extra tip, but we may be biased. Nonetheless, it is always wise to double check with your server if you have any questions or concerns about the service charge to ensure a smooth dining experience.

In Conclusion: 

Being well-informed about tipping and service charges allows you to dine with confidence knowing you can avoid potential confusion when it comes time to pay the bill. 

Remember: 

Tip: A voluntary expression of appreciation for your server’s hard work. Typically shown by leaving a cash or electronic tip on top of the bill. 

Service Charge: A mandatory fee added to cover various expenses. Examples of this include “automatic gratuity” or a “service fee” which is added to the bill for larger groups dining in a restaurant. 

At Tiphaus, we encourage tipping, but the choice is yours! Whether you decide to tip generously, stick to the service charge, or choose a combination of both, your acknowledgment of the server’s hard work will undoubtedly be appreciated.  

How TipHaus Can Help:

TipHaus was designed with your customers in mind. Easy-to-use, native integration with your POS means no manually calculated tips, while our advanced software can handle any tip distribution model or structure; or complications your customers’ restaurant might encounter. Here at TipHaus, we understand how challenging it can be to deal with tipping and service charges. That’s why our platform is designed to simplify the process and provide a seamless experience for everyone. Customers can dine with confidence knowing that their gratuity reached servers and staff when they use TipHaus! 

Sources: 

https://www.irs.gov/businesses/small-businesses-self-employed/tip-recordkeeping-and-reporting#:~:text=your%20tax%20return.-,Report%20tips%20to%20the%20

https://www.bankrate.com/personal-finance/how-much-to-tip/#:~:text=Even%20if%20the%20service%20is,percent%20of%20the%20pretax%20bill

https://thehill.com/changing-america/respect/poverty/4078166-service-charge-vs-tip-whats-the-difference/#:~:text=While%20these%20charges%20add%20some,tip%20credit%2C%E2%80%9D%20Mickelsen%20said.

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