'Tis the season for generosity and giving. But when you are dining out with friends, colleagues, or family members over the holidays, you may be wondering just how generous you need to be with tips — particularly, if the service wasn't that great.
Tipping is not mandatory in the United States, so there are no laws that govern how much gratuity should be paid. That means it is generally up to you to decide how much of a tip to leave a server at a restaurant.
According to the Emily Post Institute, which focuses on etiquette, a pre-tax tip of 15-20 percent is considered standard for service in sit-down restaurants.
When there have been issues with the service — such as a waiter messing up an order or not being attentive — many restaurant patrons reduce tips accordingly. However, keep in mind that servers often make less than minimum wage per hour and are expected to pay income taxes based on sales and the assumption that they earn at least 15 percent in tips.
Many restaurants place automatic gratuity on large dining groups — usually 18 percent — which is legal to do under federal law. But state laws determine whether paying the automatic gratuity is required.
Interestingly, the IRS qualifies these payments as service charges and not tips, which means they are treated like wages instead of tips for tax purposes. It also allows restaurants make the argument that a service charge was not a tip and therefore was not voluntary.
In situations involving a true tip (and not automatic gratuity), the server has no legal standing to argue that a tip should have been paid or should have been greater because tips are voluntary, albeit customary and expected.
On the other hand, if a customer refuses to pay automatic gratuity, the restaurant may have legal standing to demand that the "service fee" is paid, so long as it made the policy clear in the menu or in a statement by the server.
So, the next time you are out, take a look at the menu for a statement about automatic gratuities. If one does not apply to your group, the tip you leave is under your discretion. Just remember that your server could make as little as $2.13 per hour and depends on tips to make ends meet.