New IRS Rule Causes Restaurants to Rethink Automatic Gratuity

ohoadmin — Fri, 13 Sep 2013 20:44:34 +0000

New IRS Rule Causes Restaurants to Rethink Automatic Gratuity ohoadmin Fri, 09/13/2013 - 16:44 September 13, 2013

This month, the Wall Street Journal reported that a new IRS rule is causing restaurants and bars—including those in hotels—to rethink the common practice of adding automatic gratuities to parties of more than six customers.

“Starting in January 2014, the IRS will begin classifying those automatic gratuities as service charges, which it treats as regular wages, subject to payroll tax withholding—instead of tips, which restaurants currently leave up to the employees to report as income.”

Waiters engage in a friendly race in Luxembourg. Photo Credit: Gwenaël Piaser

As a Hospitality Instructor, students regularly ask me about tipping (and specifically, what is appropriate). From there, our discussions always become more interesting, as we discuss who tips and who doesn’t, often related to a customer’s country of origin. I’ve repeatedly heard from employees and students in the industry that Europeans do not tip, and some years ago, in Dallas, certain of my employees refused to serve South American and especially Brazilian customers because they seriously believed that they would not tip.

These sound like unproductive stereotypes and biases, and indeed they were; my job as a manager was to persuade employees that this mindset would lead to poor service, and thus guarantee a poor tip. We could not discriminate against millions of customers, regardless of any truth attached to these assumptions. For in truth—no matter their country of origin—tourists on a tight budget behave very similarly.

Tips are essential to many service professionals' salaries. Photo Credit: Elvert Barnes

Having said that, my observations through traveling and working internationally have proven tipping to be more ingrained in American culture, for several reasons. First off, we are a country of charities and generosities; not only is philanthropic giving embedded in our society, but it is sanctioned by governments through tax breaks. Furthermore, during high school and college, many Americans—including myself—pay off their college expenses by working in service jobs, where the primary earnings come in the form of tips.

Despite the stereotype that Europeans don’t tip, the word originated in an English tavern. A bartender in the UK noticed some of his patrons were too thirsty to wait patiently, and noisily called attention to themselves in order to get their next drink faster. His simple solution was to label a small tin cup at the end of the bar counter with the phrase “to ensure prompt service.” Thus, the word TIPS was coined.

The tip jar is a British invention. Photo Credit: Pip Lagenta

Here, we see a return to the root definition of “tip”: prompt service. In turn, I sometimes wonder why it should be expected to provide a tip to servers who have not provided timely, courteous service. However, even when service causes reason for complaint, most Americans—myself included—would not leave a restaurant without leaving the minimum 15%.

In turn, the IRS rule adds yet another twist to our complicated culture of tipping. Until now, automatic gratuity may have reduced servers’ motivation to provide exceptional service, but soon it will also lack the tax-free benefits of a traditional tip. Those who choose to eliminate the large party service charge will expose servers to the risk of a minimized tip, but a tax on automatic gratuity offers reason enough to reconsider this widely accepted practice.

Hospitality Management

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The End of Hotel Room Service?

ohoadmin — Thu, 13 Jun 2013 19:18:22 +0000

The End of Hotel Room Service? ohoadmin Thu, 06/13/2013 - 15:18 June 13, 2013

By Tom Kombiz-Voss

Hilton Hotels certainly ruffled a few feathers this month, when it was announced that their largest New York City property would discontinue room service to all 2,000 of its rooms.

Photo Credit: http://www.flickr.com/photos/uggboy

It was in 1969 that the Westin chain implemented the 24-hour room service, establishing a unique service in hotels that, throughout the years, has had many ups and downs. Today, in the interest of cutting costs to make a profit, hotel and resorts have struggled to make financial sense of this now expected luxury. In the 1980s, luxury hotels decided to rebrand room service, calling it “in-room dining”—how becoming! This elaborate form of fine dining certainly raised the bar. Traditionally, elegant meals were delivered about two hours after ordering—often prepared by the hotel’s own gourmet restaurant.

A well-dressed server would knock on your door and the show began: a nice white tablecloth cart was rolled in, the wine bottle would be corked, and even tableside cooking was performed! From there, the server would leave, returning a short while later to serve dessert, pour more wine, and clean. It’s hard to find honeymooners or other vacationing couples who would not like to experience this romantic, private service scenario! Some time later—similar to the industry’s “bed wars” of 2006—hotels launched a “room service war,” switching up standards by offering delivery-style pizza with uniformed servers, health conscious meals or celebrity chef-inspired menus. These new amenities were often featured in elevator advertisements and guest service directory flyers.

Tom Voss on a field trip to the Ritz Carlton with ICE Hospitality Management students.

Today, some hotels are seeing room service less as a symbol of decadence, and more of a heavy burden on their budget. To justify expenses, hotels have tried to cut down on labor costs, increase delivery time, use simplified menus or—following trends in airline food service—switch to disposable silverware. Some properties have even assigned their restaurant manager to babysit their room service department. Yet, despite these shifts in quality, in-room dining and its less elegant offshoots remain a desirable amenity for many guests.

For travelers, there aren’t many benefits to discontinuing room service, aside from eliminating dirty dishes and trays of leftover food in the hallways of hotels. (Keeping those trays off the hallways has been a challenge for hotel staff.) Yet it would seem that the easy accessibility of grab- and- go is too easy of a solution. Guests have always had the option of purchasing carryout food from a hotel’s in-house restaurant.

Guests do not plan when they are going to be hungry, nor do they plan on returning to their rooms to eat at a scheduled mealtime. They want to order food and beverages at the time that is convenient for them. We always compare a good hotel to our homes, and in our homes, the kitchen is always open. At some point, hotels must decide if they want to budget for staff who, too often, are sitting around and waiting for orders. Cutting costs may or may not be worth upsetting guests, as those who prefer room service may opt to stay elsewhere.

If hotels decide to eliminate this expected luxury, travelers will certainly miss their club sandwiches and breakfast in bed. According to a Crain’s online poll, people were asked if they would stay in a top hotel if it didn’t offer room service. Forty-two percent said “Yes. No one depends on room service anymore. That’s not why I go to luxury hotels,” while 58 percent said “No. Room service is essential. That’s what the luxury hotel experience is about.” There is more to be said about room service, but one thing is certain, not all hoteliers will ever agree that this service can be eliminated without the risk of losing valuable guests.

Hospitality Management