How the New IRS Rules Regarding Group Gratuities Could Impact Restaurants

For years it has been common practice for restaurants to add a fixed gratuity to parties of five or more. As of the beginning of this year, however, how restaurants handle tips for large parties is going to have to change. The IRS came out with a new ruling this year that draws a more distinct division between what are considered tips and what are considered service charges. From here on out, it will no longer be legal to require a tip and still call it a tip. If it’s a mandatory fee, it is now called a service charge, which changes how restaurants can handle payouts for bonuses.

It used to be that cash tips generally went unreported, though both tips and wages are technically taxable. Those days are mostly gone now, what with credit cards and more stringent reporting and tracking requirements. This change in what constitutes service charges vs. tips comes on the heels of a larger effort by the IRS to crack down on tip reporting in general, though many feel that this added ruling isn’t going to turn up much in terms of unreported income.

What Restaurants Can Call Tips Versus What Can Be Called Service Charges 

In order for something to be considered a tip, it must be voluntary. The customer has to decide who gets the money. It must also be for an amount entirely set by the customer, not dictated by a company policy. If it is a mandatory fee such as a fixed gratuity, it is considered a service charge, not a tip, and therefore must be processed through payroll rather than being paid out to the server that day.

The Biggest Effects of the New IRS Ruling on Restaurant Operations

The biggest effect of the new IRS ruling is that it will complicate payroll accounting. Larger restaurants may already have the infrastructure to deal with the additional accounting, but smaller establishments may not. Employees who are used to cashing out their tips each day will also be affected, since they will now have to wait until payday to get their bonuses for the larger tables they served.

Some restaurants will deal with the additional accounting and maintain their fixed gratuity policy. Others will do away with a fixed gratuity entirely in favor of a gentle reminder encouraging patrons to tip by putting a “suggested amount” for the tip on the receipt instead.

How Restaurant Operators Should Handle the Policy Change

The best thing you can do to handle this new IRS ruling is to simply talk to your employees. Let them know about the details of the new rule and that it’s coming from the government, not you. Ask for their feedback about what might be the best way to handle gratuities for large parties, now that fixed gratuities are no longer allowed to be considered tips. The choices are to either keep letting servers take home large party tips that same night (but let them risk getting under-tipped), or to keep the fixed gratuity as a service charge that then doesn’t allow employees to take home the bonuses until their next paychecks. Talk over the options with your staff and see how they feel about both choices before making a decision.

Effectively Managing Generational Differences in the Workplace

With the possibility of having up to four generations in the restaurant workplace at once, it’s critical that you have a strategy in place to overcome generational differences. Without such a strategy, there’s bound to be tension in the ranks – which in turn affects your business’s overall success. Fortunately, bridging generational gaps is as simple as acknowledging and respecting differences, while looking for common ground. Here are the key understandings and strategies you’ll want to employ.

Recognizing and Working With Generational Sticking Points between Your Employees

The first step to working with generational differences is acknowledging that there are differences. The second step is inviting conversation around what those differences are. Generations differ drastically on a number of important points such as how they communicate, make decisions, share information, receive feedback, and show respect and loyalty. They also differ on what they think is appropriate in terms of dress codes, work ethic, behavior at work, and adherence to company policies and trainings.

The key realization is to understand that no one group is ‘right.’ We each developed our ethics around these matters according to the realities of the world we grew up in. Inviting conversation around this topic helps the different generations gain understanding and appreciation for each other, and is sometimes all it takes to relieve any mounting tension between groups.

Appreciate Generational Differences in the Workplace and Look for Common Ground

After you’ve spent some time fleshing out generational differences and needs, the next step is to start looking for common ground. While the differences between generations can be great, the underlying needs are the same. For example, take the sticking point of sharing information and knowledge. All people share the common need to have information in order to do their jobs well and feel like valued members of the team. How they want to give and receive that information is what varies from one generation to the next.

Learn to Flex and Resolve Generational Differences in the Workplace

Now that you’ve gained understanding for both the differences between generational needs and  areas of common ground, the next step is to take action. Ideally, you can find a way to flex so that the needs of each generation can be met. For instance, consider how the generations prefer to learn differently – with the Millennials preferring online training while the Traditionalists tend to prefer a classic classroom setting. Rather than catering to one group or the other, offer both options, let people choose and keep the focus on verifying that they have gained proficiency rather than on how they got it.

Where you can’t flex, find a way to resolve the issue. Utilize the unique strengths that each generation brings to the table and look for solutions which are mutually agreeable to everyone – after having had a thorough discussion with your staff about what everyone’s needs are.

The key to harmony between generations at work is communication, respect, and understanding. Fostering these values will immeasurably help to facilitate a strong, highly effective team for your business.