Tips versus Service Charges

Abstract

If Iowa's restaurants are any indication, the service charge is going nowhere and tips will still be expected in most restaurants. But accounting for tips is immensely complex, due to federal regulations. This study of Iowa restaurants found that sales levels and waitstaff wages were both lower in rural restaurants than in urban operations. In both kinds of places, however, state and federal regulations were most influential in setting tipping policies. Some 29 percent of the restaurants surveyed reported adding an automatic service charge to customers' bills, and most of those were restaurants with high volumes located in urban counties. Most of the service charges applied to banquets or group business. Just 3 percent of the restaurants added a service charge to casual parties of any size.