Should Your Restaurant Use Tips or Auto-Gratuity?

Tipping is still the norm in many restaurants around the U.S.A., but increasingly often, businesses are trying alternatives to the traditional tipping structure. Whether because their servers call for a different way to take home their pay or customers want to give back to essential workers, restaurants all over the country are replacing their tip-out structure with living wages and benefits or auto-gratuities instead.

What is an auto-gratuity and why do some restaurants prefer it? Although many consider “auto-grats” similar to tips in that they’re an addition to a server’s base pay, auto-grats are technically non-tipped wages. This classification matters primarily for tax purposes; it’s subject to similar deductions as the wages themselves. However rather than leaving each shift with physical cash in their pockets, waitstaff sees the additional money added to their paycheck instead.

When deciding whether you want to switch your current pay and tip-out system for an auto-gratuity model, remember: Communication is key. Your waitstaff is out on the floor face-to-face with customers every single day, so they know their own needs as well as customers’ expectations and preferences. Talk to them and see which model they prefer, educate them about the up- and downsides of each, listen to their opinions and decide together whether auto-gratuity is right for your employees and business overall.

Pros

When servers don’t rely on tips, they get a clearer idea of their own finances. Although they still won’t know exactly how much they’re taking home until they get their paychecks, they won’t have to rely on tips given out at the customers’ discretion.

Compel more qualified servers to answer your job postings and draw them in over your competition when you guarantee steady “controlled tips.” Servers are people too; forcing their wages to rely on sometimes cheap or unpleasant customers leaves a lot of workers struggling to afford the cost of living, but taking out the guesswork gives them a better idea of how much they’ll take home at the end of the pay period so they can make better budgeting decisions in their personal lives. As a business owner, you understand the importance of financial planning.

Some restaurants are trying to find a middle ground, offering their customers “suggested tips” instead of an auto-gratuity. Technology like the devices powered by eatOS automatically calculate tips so customers can simply press a button to give their 15%, 20% , 25% or a custom amount of their choosing. This prompts customers to tip their servers well but still leaves the final choice up to them on how much to pay.

Cons

For all the arguments in favor of replacing your current tipping structure, there’s a reason that tradition remains so popular in food service today. Customers are used to tipping and could become frustrated if they’re forced to leave money for the server rather than given the option, especially if they perceive they’ve been given poor service and need to pay out the traditional 20% anyway. In line with the rise in the “conscientious consumer,” you also risk alienating customers who firmly believe that restaurants, and not their patrons, are responsible for paying their own employees a living wage.

Servers might also prefer the tip-out structure because they can take home their extra cash right then and there instead of waiting for payday; this is potentially beneficial for those otherwise living paycheck to paycheck, but as usual communication is key: Ask employees which they prefer, and check in with your customers too. Sometimes guests oppose auto-grats simply because they don’t know that it exists and are in for a nasty surprise when the bill comes, even if they would have normally paid out a full tip anyway.

Alternatively, you and your servers can work out some sort of creative compromise between auto-grats and tips. For example some places only implement auto-grats for large parties, perhaps larger than six people, or for massive events like catering so they can be sure their staff is paid for the extra workload. Other restaurants let customers, or servers themselves, decide if they want to opt into the auto-gratuity at each individual table.

 

Deciding whether to overhaul your current pay structure and switch to auto-gratuities is a weighty choice for any business. Making the right call for your business depends on the opinions and needs of your staff, your particular customer base, what nearby competition is doing and your own priorities as a business owner. It also depends on what you can reasonably afford as well as whether your current pay and management structure is conducive to a complete overhaul right now.

There’s no perfect solution when it comes to restaurant management or developing a productive, contented staff. Undeniably, satisfied employees work harder. Talk to your employees to get a full picture of their needs and expectations, and come up with a plan that works for them, your customers and you. Auto-gratuities may be what takes your restaurant from a good place to go to a local favorite to work and dine out.

Editor's Picks