Is an automatic service charge, charged by some restaurants in New Jersey, essentially the same as a tip?
Not necessarily, according to the New Jersey Business and Industry Association.
At the height of the COVID-19 pandemic and with inflation at levels not seen in decades, at least a few companies added such charges to restaurant bills.
Some are adding the fees to try to counter credit card processing fees on each transaction, which have also been steadily increasing, an NJBIA spokesperson told New Jersey 101.5.
Since customers are not required to tip, other restaurants and bars may use automatic tipping to ensure staff are compensated fairly.
One such recent case occurred in Hudson County – at a Cajun-style restaurant in Bayonne that drew a mixed reaction from the public.
An 18% service charge was added to dinner bills at Hook & Reel, according to a Facebook post in Bayonne Talks, prompting more than 300 comments before the private community group closed the discussion.
A number of reviewers said it was a sign that people hadn’t tipped appropriately, while other reviewers said they didn’t think they should be ‘forced’ to tip a certain amount.
In the same Facebook thread, those who are or have been servers pointed out that 100% of tips do not stay with one person, but must be shared among others at the establishment, such as bartenders and busseurs.
A request for a response from the restaurant went unanswered on Tuesday.
For tax purposes, even though these automatic charges go to restaurant staff, they cannot be considered tips.
Automatic gratuities are permitted under federal labor laws, although a service charge cannot count as a tip credit against the employee minimum wage.
Employers must deduct payroll taxes from automatic service charges before distributing them to staff.
Another difference is that these employers can claim a tax credit for tips, but not for service charges.
Bad tip rising
Has tipping really become a dire situation?
Americans are tipping worse now than before the pandemic, according to a recent survey by CreditCards.com – which also suggests the problem is partly generational.
While 77% of Gen Xers (42-57) and 87% of Baby Boomers (58-76) said in a recent survey that they “always tip restaurant servers”, only 52 % of Gen Zers (18-25) and 60% of Millennials (26-41) said the same.
According to the survey, more than four in ten (43%) of combined Gen Z and Millennial restaurateurs leave nothing at least part of the time.
The average tip amount was 20% for all generations in the same survey, as “Gen Xers” tip an average of 20% and “boomers” tip an average of 19%.
Erin Vogt is a reporter and anchor for New Jersey 101.5. You can reach her at email@example.com
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