Yes

by Barbara Stanley

Created on: February 17, 2010   Last Updated: April 06, 2010

Should tipping in restaurants be banned? The following argument gives reasons why this practice is outdated and no longer serves its original purpose.

In bygone days, a customer would tip a waitress or waiter for the good service they provided. It was a simple transaction between the customer and the waitress. This was a very good thing due to the fact that the food service industry is allowed to pay sub-minimum wages to employees. Depending on where you worked, the price of meals, and the volume of customers you served, you could earn one hundred dollars or more in tips each shift. The wait staff did not have to report this money as income to the employer or to the IRS. That was then. Since 1977, all wait staff must report 100% of all tips received.

The IRS realized it was losing a large sum of money because tips were not being taxed. Once the IRS got involved, the joy of receiving tips evaporated. The entire process is now complicated for the employee and the employer. All tips received for the day must be reported to the employer. The employer must withhold federal and state taxes, as well as Medicare taxes from all monies received as tips.

Waiters and waitresses are required to keep a tip diary that is shown to the employer periodically as dictated by the employer. The employer is required by the IRS to withhold the same taxes from tip monies as is withheld from a waitresses regular pay. The IRS forms can be complicated for the wait staff and the employer, depending upon the size of the restaurant, volume of customers, and number of employees on permanent staff.

The plus side to this is the fact that employees pay social security taxes on their tips, with their employer paying half, allowing wait staff to receive larger social security checks when they retire. Assuming, of course, that a person retires from waiting on tables.

 If the restaurant owner reports that all tip income received for a particular pay period is below 8% of the gross sales receipts for that period, the IRS says the owner must make up the difference by allocating equal amounts of tip income to each employee. This insures that waiters do not earn less than minimum wage during any pay period.

Many restaurants plainly tell their customers how much to tip each waitress. It is simply added to the customer's bill. A tip, or gratuity, becomes part of the cost of food when it is demanded from a customer. It is no longer a bonus, decided upon by the customer, for exceptional service. In this case, the customer is required to "tip" his server whether the service is exceptional or exceptionally poor. The wait staff has no incentive to give great service. 

In some restaurants, customers are either embarrassed or pressured into leaving large tips. If restaurants were required to pay minimum wage to their employees, tipping could be banned altogether. By raising the prices of each meal by one dollar, a family of four might pay $44.00 before taxes for their meal as opposed to $40.00 plus an 18% tip.  This would save the customer approximately three dollars, depending on the tax rate. The customer would know exactly how much his total bill would be and he would never feel pressured or embarrassed into leaving a large tip.

The wait staff would know exactly how much he would earn each pay period, without fluctuation. This would eliminate the possibility of a waitress working exceptionally well as she served a large group of people, then receiving no tip. It would also put an end to the most attractive wait staff receiving large tips for average or below average service.

The Restaurant Industry is projected to earn 1.5 billion dollars in profit on a typical day in 2010.  They currently employ 12.7 million people, making them key players in our economy. The profit margin for the average restaurant is three to five percent, with some restaurants earning around ten to fifteen percent. Since tipping has drastically changed from its intended purpose, and is subjectively unfair to the waiter and the customer, there is no good reason to continue this practice. 

 The most fair thing would be to force the restaurant owner to pay a living wage to his employees and not shift this burden to the customer. No other industry sells a product or service, then expects public to pay the working wages to their employees.

There is no proof, but I doubt hair salon owners, postal workers, and others in the service industry, report all tips as income. Since tipping has become so complicated and so widespread, perhaps it is time to ban all tipping in the name of fairness.

Learn more about this author, Barbara Stanley.
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