There’s a lot of talk and thinking going on about tips, gratuities and service charges, and how they can best fit in with strategies to motivate staff and maximize operating income.
It seems there’s a lot of talk and thinking going on these days, from various perspectives of the club market, about tips, gratuities and service charges, and how they can best fit in with strategies to motivate staff and maximize operating income:
- A recent discussion among club managers and controllers within C&RB’s LinkedIn group (see pg. 6 of this issue) debated the pros and cons of imposing percentage-based service charges with each customer check, vs. flat monthly or annual service fees. As some of the discussion participants noted, many clubs are finding that flat fees imposed across the membership base are proving to be a relatively painless and non-controversial way to institute de facto dues increases, with the interesting distinction that they can actually prove to be a reward, and incentive, for members who dine frequently at their clubs.
- At C&RB’s recent Design & Renovation Insights workshop held at Scioto CC in Columbus, Ohio, Scioto’s General Manager, Greg Wolf, spoke about the impressive growth of that club’s F&B business (up 40% since a recent renovation added a popular new casual grill operation). Wolf reminded his colleagues that “you’re only as good as your weakest people,” and pointed to a new tip fund he’s instituted, based in part on a percentage of overall sales, as having a directly positive effect on his ability to attract and hire better servers year-round.
- A briefing from the McGladrey consulting firm advised clubs to reevaluate their gratuity policies in light of a recent IRS ruling that clarified the four requirements that must exist for a payment to be classified as a tip (it must be made voluntarily, the customer must be free to determine the amount, the payment cannot be dictated by employer policy or subject to negotiation, and the customer must have the right to determine who is entitled to receive the payment). The absence of any of these could result in the payment being seen by the IRS as a service charge rather than a tip, the McGladrey advisory noted—and anything classified as a service charge must be included in a employee’s wage base for the purpose of calculating overtime. Further, service charges aren’t eligible for employer tip credits or FICA credits. Clubs that use the technique of adding a “recommended gratuity” of a specified percentage to provide tips for their service employees should revisit how they communicate those charges to customers, to make sure there is compliance with all four requirements, McGladrey advised.
- Then there’s the input I get on the subject from my youngest son, who works part-time as a busboy at a busy city club while attending college. He thinks his share of the tip pool that shows up in each of his paychecks (and often significantly enhances his hourly wages) is “tight”—I’m pretty sure that means he likes it, and finds it to be a good motivating factor.