Saying Farewell to Added Gratuity


Posted Tue, Feb 26, 2013

DENVER — Added gratuity is a controversial topic among the patrons and restaurants in the Denver metro-area. Until a few weeks ago a restaurant could add gratuity to a bill of sale depending on the store’s classification of a “big party” to insure an appropriate tip for the servers waiting on the table. For Denverites feelings were mixed on this topic, some felt like this was a fair requirement when they dined out with a large number in their party, others, however, felt that this was quite an imposing gesture and disliked the idea of a forced tip.

Tensions among patrons were dissolved recently though with the IRS’s implementing of the ruling in the Rev. Rul. 2012-18. This ruling draws a line between tips and service charges and bans added gratuity in the service industry in Denver. The bulk of the ruling defined a tip as having four qualities:

(1) an amount of money presented by a guest free from compulsion.

(2) a payment that the customer has the unrestricted right to determine the amount of.

(3) a payment whose amount cannot be the subject of negotiation or dictated by employer policy.

(4) a payment in which the customer can dictate and determine the recipient. Within this ruling, the added gratuity that is used in all hospitality industries with large parties is eliminated.

With added gratuity, a server who serves more than the average number of people on one table, and creates a larger bill in sales, is guaranteed at least an 18 percent tip off the higher bill. Added gratuity was put into place to safe-guard the server or servers from not receiving a tip. Today the customary tip is 20 percent for a server, however, that is not always a rule that is followed among patrons. Even though the added gratuity is lower than the normal expected tip, servers enjoyed the security they know would come with the bill.

So what does this ruling mean for those working in the service industry?

With no insurance of an appropriate tip on a large party where a lot of work and effort is exhausted, it is expected that servers will be less keen to the idea of serving a large group.
“We will end up paying to serve,” says Jessica Holzman a server at a DTC restaurant,“when the company takes out tip pool from our tips based on the sales tax, and I didn’t get a good tip from them it will end up that I paid to serve them.”

Companies like the one Holzman works for take out a “tip pool” at the end of each server’s shift. This tip pool distributes money to the people who assist the servers in a secondary nature such as bartenders, bussers, etc. Tip pools such as the one that Jessica Holzman pays out to, the amount of money taken from the server is not based on their earned tips but their sales. So, in all truth, Holzman’s comment could ring true. Thus if there is a high bill with a low tip, a server could end up paying out more money than they made on the table.

Some patrons argue, however, that the IRS’s elimination of added gratuity might be a beneficial move. The act of imposing a tip on a guest, whether their server was good or not to their satisfaction irritated some patrons.

“When I see a server has already added a tip on my bill, I don’t tip extra,” says local patron Barbara Jensen. “Sometimes when people see the added gratuity they don’t want to give anymore since you have already taken that out. But this way maybe people will be inclined to tip more.”

Some Denverites say with an un-assumed tip, they will be more inclined to tip the appropriate 20 percent opposed to adding extra on to the 15-18 percent that was added as gratuity.

The change in the front-range tipping will be interesting to see if it produces positive or negative effects in the service industry. The success of Rev. Rul. 2012-18 ruling really depends on the patrons of Denver and if they decide to abuse or embrace the appropriate tipping amount. So, while enjoying the delectable dining options in the Mile High, keep in mind the staff contributing to your night out.

About Jen Sasser

Jen Sasser is working towards a Photojournalism degree with a minor in African American Studies. She is deeply interested in African affairs, non-profits, and travel which is evident in her writing and photographs.

View all posts by Jen Sasser

5 Responses to “Saying Farewell to Added Gratuity”

  1. Andrew Says:

    Yeah interested to see what happens. I know this affects a lot of college students. I enjoyed the story it flowed well and was explained in an easy to understand way.


  2. Davy Says:

    Good information reported. Good quotes used.


  3. Jen Sasser Says:

    Hey this Jen Sasser, she’s quite brilliant!


  4. AJA Says:

    good info, like the factual references


  5. S.L. Alderton Says:

    Good article! I like how you broke down the elements of the ruling in the middle.


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