Restaurants reconsider automatic tips because of new IRS ruling


NEW HARTFORD, N.Y. (WKTV) - An IRS ruling about the categorization of "automatic gratuities" could have many restaurants reconsidering automatic tips, including Michael T's in New Hartford.

Automatic gratuities are commonly applied to bills for large parties to prevent stiffing the servers. The new IRS ruling , however, changes the categorization of automatic gratuities from a tip to a wage, or service charge and will now cost employers and servers more money.

Michael Trunfio, the owner of Michael T's says his restaurant had an automatic 18 percent tip for parties of six or more for over 10 years. After the most recent IRS ruling, he plans to remove the automatic gratuity fee.

" What I'm concerned about is big parties. Specifically, banquets we have with 30 people," Trunfio said, "If you take a $500 dollar bill where 18 percent is $90 dollars, more people will think twice about leaving a 90 dollar tip on a large party without the automatic gratuity fee. So we might have to go up a dollar on entrees for banquets."

If restaurants keep the automatic service charge, they will end up paying taxes on it, along with the servers. The servers won't get those tips at the end of the night either. Servers could have to wait two weeks for the payment, after it is processed through the payroll system.

Karen Trunfio, a server at Michael T's believes the new ruling is going to have an affect on servers livelihoods, " Who is making these laws is clearly not anyone in the service industry. Because they have no idea. I mean if we had to take from people who worked in banking or stock market and said you are not going to get the fees you normally would get, you're not going to get these bonuses because we feel its not necessary, they certainly would not be happy."

Michael T's added a 10, 15 and 20 percent guideline to their bills as an incentive for customers to tip the servers appropriately.

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