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Tipout pt. 3

So, how does this tipout thing work?

There are a couple of different ways it might work.

You might tipout a percentage of your total sales or you might tipout a percentage of your actual tips.

You might also tipout your bar a percentage of alcohol sales instead of a percentage of all sales. I even worked in a place where I tipped out the bar on all alcohol sales minus wine sales (we actually poured wine by the glass at the table and fetched our own wine out of the cellar).

You tip out by running a percentage of either your tips or your sales. Then, you take the amount of money that you get from the house, add in the amount of cash sales and subtract out any bank that you came to work with. Then you pay your coworkers with cash out of that. You then subtract it out of your claimed tips. If you have a TRAC sheet, there’ll be a spot for the various tipouts and you’ll subtract them, coming up with your actual take home tips, and this is what you declare. If you tip out on the computer, make sure you subtract them from your tips before declaring (you don’t want to over-declare. And there’s a weird case of some backwaiters also having to tip out the bar as well. If this is the case, and you tip out based on tips, it’s far to subtract the amount of their tipout to the bar before you calculate yourtipout to the bar. Otherwise, the bar will get double tipped on that amount of tips.

The most fair way to tip out backwaiters and the bar is based on your actual tips. This way everyone shares in the pain of bad tips and gets the benefit of really good tips. Plus, if a waiter gets stiffed by a table, they don’t have to “pay for waiting on that guest”. If you have to tip out based on sales, you should ask your manager if you can exclude the amount of sales covered by a stiff. This is really only fair for everyone. However, a server should never pretend that they got stiffed simply because they got cash on a credit card transaction. This is even more despicable than a guest stiffing a server. It’s a server stiffing his or her fellow co-workers. If you are currently tipping out on sales, you might broach the subject of changing it to tipping out on actual tips with the powers that be and explain how it’s fairer. BTW, generally speaking, 20% tipout on tips is about the same as around 3% – 4% of total sales depending on well you did percentage-wise.

If you want to grease your backwaiter, by all means, do do. Grease is extra money over and above the actual amount that you are supposed to pay. However, you can’t claim this as part of your tipout for tip reporting purposes. For instance, let’s say that you are supposed to tip your backwaiter 5% of your total sales and you had sales of $500. You tip them out $25 and then you give them an extra $3 because they rocked. You should still only claim $25 in tipout. That’s because that’s the amount that they’re going to claim. Technically, grease is a “gift”, an appreciation for a job well done, not payment for services rendered. In the case of an IRS audit, they’re going to wonder why you’re claiming $3 more than your backwaiter is. Sucks, doesn’t it? Yep. and most of the time, it won’t matter, but why take the chance? Basically, you should do the right thing anyway and we’ll be doing a post in the future on why you should claim every penny of your tips (hint- it’s the law!) I’m sure that will be popular with my fellow servers – ha!

The US Labor Department requires that all tipouts be “fair and customary”. This is fudging language. They don’t won’t to be in the business of dictating. what is“fair and customary”. Well, it’s probably not what you have to do, right? Nobody seems to think that tipout amounts are fair. Everyone wants it to be lower.

I’ve seen everything from about 10% of total tips all the way up to 45% of total tips. currently, I have to tip out 33% of my total tips, which some people would think is high. However, my last job required 7% of sales, which usually translated to between 40 and 45% of tips! I worked in a brewpub where we tipped the bartender 10% of total alcohol sales. In that particular restaurant, 10% of alcohol sales usually equated to about 1% of sales or 5% of tips, which is pretty standard these days for bar tipout. there are just certain percentages that correspond whether you are talking about tipping on sales or tipping on tips. They usually fall within a percentage point or two regardless of how the night went in terms of tip percentage (unless you either had a spectacularly good or spectacularly bad night).

Finally, why do I have to tip out the day bartender when he or she usually doesn’t have to make me any drinks (most people don’t drink alcohol at lunch tables). Well, dear friends, you are making it possible to even have a bartender available in case you do. Remember, most day bartenders aren’t going to make very many drinks even for their own guests. Don’t worry about the “fairness” of it, just do it. And do it gladly, you punk. Got it? Quit yer bitchin’.

If anyone has any specific questions about the topics that I covered, or if you’re new and still confused (and believe me, it can be a little bewildering and hard to explain to a newbie), feel free to ask your question in the comments section.

This concludes our overlong series on the subject of tipout.

Credit card transaction issues

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Over there at The Insane Server, http://allprowaiter.blogspot.com/, he brought up the question of how to handle a credit card transaction when the guest screws up the math. We’ll get into that in just a minute but there’s something even more important to consider when a waiter runs the credit card.

If the credit card is actually a debit card/credit card, you have to pay particular attention and make dead sure that you are running it for the correct amount. If you screw up and, say, run the card on the wrong separate check, or type in $1000 instead of $100 either as the amount of the check or the amount of the tip, you could cause some serious issues.

“Why is that”, I hear you ask.

Here’s the deal – when you run a credit card, it’s a temporary hold on the amount that you entered. It’s waiting on you to close the transaction out when you close the check. This enables you to add an additional tip. With a credit card, it’s normally no big deal to change the amount after the fact, but before you actually close out the check, if you accidentally ring the amount for $1000 and go back and change it to $100 (I say normally because it could possibly trigger a fraud alert to protect the guest from someone using his or her stolen card and it could conceivably hang up that amount for a short period of time, although it’s usually cleared when the final transaction is completed, i.e. total plus tip plus closed check).

However, with a debit/credit card, sometimes the bank will freeze that $1000 until the next business day, regardless whether you void or change the transaction. Basically you are metaphorically tearing up the “check” (i.e. the transaction) for the guest and letting them write you a new “check”, but the bank doesn’t know that the “torn up check” won’t still be presented instead of or in addition to the original “check” – a debit card transaction is always treated as if it were a debit card transaction in a restaurant for some reason. If this happens on a Friday night and the guest only has that one card available to them, and they only have $1125 in the bank, it’s conceivable that they’ll only have $5 available to them until the following Monday evening, provided that they paid the $100 bill and left you $20. This means that $1000 of their money is unavailable to them for the weekend. Normally this would be the case if you accidentally typed in $200 instead of $20 for the tip on a $100 bill when you closed out the check. Instead of authorizing $120, it would authorize $300.  And you might even trigger an overdraft fee and notice to go to the guest because once the card is authorized, it’s authorized, whether or not the guest has the money for the increased tip in the account. 

Don’t laugh – it can happen. It happened in my restaurant…to a couple who was on their honeymoon. A couple who was 500 miles away from home planning to finance their activities with their debit card. A couple that had no other means of cash. It was a huge inconvenience to them on perhaps the most important weekend of their lives. This sort of thing happens far more than you would expect.

So, here’s yet another thing that a server has to pay attention to. Start getting in the habit of looking at the little word “debit” on the credit card and be even more careful than you usually are about typing in any amounts. Double-clutching  an extra zero can have big consequences.

Also, you should know that many of the “declines” that you might get aren’t because the guest has no money or credit available, it’s because they don’t have enough to cover the potential tip. Normally, a credit card company will only authorize 20 – 25% more than what’s in the account or on the credit line. So I could have a bill for $100 and have $119 left on my credit line and the card might be declined. Sometimes you might get a message to call the credit card provider. This usually happens if the guest happened to buy a refrigerator or some other large purchase the same day, especially if he or she did it in a different location like a suburb with its own city name. This is part of the fraud protection offered by many providers. It could also be a deposit that was hung up in processing for some reason. Usually, this sort of message had a positive outcome, but it takes time to take care of.

Credit card based gift cards are also becoming more prevalent. They cause problems in that they have a specific amount like $75 but will only allow a restaurant transaction of $75 minus 20% or so (for the same reason as stated before). Be careful of these because you’ll get a declined until you find the “sweet spot” that the provider has set. It’s particularly tricky when it doesn’t cover the whole bill. You’ll have to get payment for the rest of the bill. The guest has to decide where they’re going to put the tip, which can complicate things. And, if the guest leaves a tip that’s more than the amount on the card by accident, guess what? You’re out of luck. You’ll only get the amount up to the limit of the card.

One final thing – some guests will pay for part of the bill with a credit card and part of the bill with cash. If this happens, write the full amount of the bill somewhere close to the charge slip amount (if your restaurant allows it, of course).  Otherwise, the guest might compute the tip on the smaller amount. Usually this is just human error and it’s a function of just doing the routine thing of seeing an amount and calculating the tip on that amount. I like to give them the chance to remember that this isn’t actually the amount of the bill, that the original amount is higher. Occasionally I’ll even point this out by saying “Here is the amount of the original bill”, but you have to do it in an off-hand “I’m doing you a favor” sort of tone, not “You’d better tip on this amount, not that amount . Anytime the amount of the credit card is lower because of cash, coupons or gift certificates, I always write the original amount right above the printed figure. I’ve never asked if it’s OK to do this, and if you do this without asking, you take the risk on yourself. But if you do, this is the response to your manager if they ask you why you did that – “I’ve had several people ask me what the original amount was, so now I do it on all of my credit card slips as a courtesy to them”. It’s hard to argue with that, because a good guest will ask about the original amount so that they can tip you on that amount.