Why is gratuity added to large parties

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Sign Up. I Support Learn More. Latest Stories. More ». Sign Up Now No Thanks. Become a member and go ad-free! Instead of adding a service fee or service charge to the bill, some restaurants simply build it into their menu prices, similar to many restaurants outside the U. Meyer rolled back prices last year. We remain committed to carefully sourcing our ingredients and correctly compensating our dining room and culinary teams.

Still, despite the growing pains, Anton predicts that this is where the industry is headed long term. Support Login. Get your restaurant set up for success with Upserve! Share The new year is time for change, even in the service industry. Starting January 1, the IRS will classify automatic gratuities as service charges that are taxable as regular wages and subject to payroll tax withholding.

That might sound like a bunch of arcane tax law mumbo jumbo, but what it means is that restaurants have to treat those tips like regular wages. Typically, the IRS left it up to the waiter or tipped employees to declare that money. But with this new change the waiter won't see those "tips" until payday—instead of the end of the shift.

And restaurants will have to withhold federal income, Social Security and Medicare taxes on that money, too. The addition has been added onto large parties to ensure that servers are paid for catering to a large group.