Tipping with cash vs credit?

July 3, 2005 8:01 AM

From the perspective of the waiter/waitress, is it better for me to tip via cash on the table vs. a number written on the credit card transaction? Do they end up getting less when tipped via credit card, due to restaurateur shenanigans or tax reporting or other? Cash often isn't an option because of time constraints (need to make change) or just laziness.
posted by intermod to food & drink (36 comments total)

I don't know the specifics, but all my friends who have worked in restaurants have always said to tip cash if at all possible. Probably because of the tax thing, and I wouldn't be suprised of the restaurant took a percentage off (since the restaurant gets charged usually around 3% per CC transaction). Plus the server will have the cash in pocket that night instead of having to wait for their paycheck.

Every time I pay my bill with a credit card, I just write "cash" on the tip line and it's always seemingly appreciated by the server.
posted by socialdrinker at 8:15 AM on July 3, 2005

I remember having a conversation with a former waitress about this very issue. She was of the opinion that when you pay via credit card, it's a nice idea to leave the tip in cash. This makes it easier on the waitress (and busboys) - they can get their tips directly (i.e. they don't have to deal with the manager at the end of the night to get their tips "paid back").

I don't know about "owner shenanigans" - I would think they are relatively few and far between.
posted by ObscureReferenceMan at 8:16 AM on July 3, 2005

Yes. Waitstaff prefer cash tips.
posted by cribcage at 8:24 AM on July 3, 2005

Really? Back when I waited tables and tended bar, I got paid out on my credit card tips at the end of the night in cash from the manager on duty. Whether the customer had tipped on his/her credit card or tipped in cash to begin with made absolutely no difference at the end of the night.
posted by scody at 8:42 AM on July 3, 2005

Cash. When you leave a tip on the CC, then there is a paper trail of the tips so it is more common to claim those tips. If you leave the tip in cash, then the waiter can more easily get away with not claiming those tips. We found this out the hard way where I used to work when a fellow waitress got audited and then IRS used the CC tips against her.
Also, when you leave a CC tip, it is fairly easy for the server to actually change the tip amount (ie, it's fairly easy to change a 2 to an 8 and it seems most people don't do the best job of checking their balance against their receipts). Once again, where I used to work, a different fellow waitress got busted for this and the cops actually came to arrest her at the restaurant. Best way to go is leave a big '0' with a dash through it- makes it pretty difficult to make subtle changes to the tab to increase their tip.
One thing to be cautious of: if at all possible, give the cash personally to your server. There are countless times when somebody would take the money that was left on the table before the server got to it, and it was usually the bussers or other servers.
posted by jmd82 at 8:44 AM on July 3, 2005

So jmd82, you're saying you should pay cash because it makes it easier for the server to defraud the government but more difficult to defraud you?
posted by grouse at 8:51 AM on July 3, 2005

Cash, please. It's just so much easier to scoop up a couple bills than to deal with the credit card machine, and getting cash back, etc.
posted by kalimac at 9:00 AM on July 3, 2005

So jmd82, you're saying you should pay cash because it makes it easier for the server to defraud the government but more difficult to defraud you?

You make a good point grouse. One reason to tip in cash rather than with credit cards is it makes it easier for the waiter to defraud the government but harder to defraud you
posted by Hildago at 9:21 AM on July 3, 2005

as a former waiter- Cash

basically it allows them to choose to declare how much in the way of tips they got. If they get 15% all cash then they can just choose to declare 10% or so. If they get 15% in cc then they have to declare 15%. And as far as I know I've never seen any restaurant shenanigans. I always got all my tips at the end of the night even when they were all credit card.

And grouse, yes you're helping them cheat the government out of a few pennies. If that bothers you, pay in credit card. But if you have sympathy for people not generally making much, leave cash
posted by slapshot57 at 9:30 AM on July 3, 2005

I watiressed for about 8 years in total, through school. Here's the definitive deal:

1. It isn't that big a deal, either way. Servers will certainly prefer cash tips for reasons I will give below, but they are also accustomed to a plastic world, and at least 75% of payments in a restuarant or bar that is not a dive come as plastic. It's not worth stressing out about.

2. The federal government requires you to pay taxes on 15% of your billed sales. Restaurants don't normally take taxes out of servers' paychecks at all, for the simple reason that most servers do not get paychecks as such. Servers work like contract labor; they are given an hourly wage that is far below minimum (last place I worked, $2.15) which is really just enough to cover the deductions the employer has to take for SSI, worker's comp, and the like. A check for two weeks' work for a full-time server might work out to 45 bucks, maybe. Tips are the real source of earnings for a server. Because of that, servers end up paying into the tax system at the end of the year -- they never had the chance to have taxes withheld, as do other kinds of workers. Some may actually make quarterly tax payments, but that's rare. So what happens is that as a server, you track your tips and pay taxes on the tips you have declared. Usually you declare your tips every night at the end of your shift. If you have credit card tips, you must enter them into the recordkeeping system (computer or otherwise) as they were written. It does create a paper trail documenting the amount you were given, and you owe taxes on it because it is income.

3. If you receive some cash tips, though, what people commonly do is declare 15% of the bill's total as the tip and keep any surplus (over 15%) without declaring. Sometimes (hopefully, a lot of the time) the cash tip is greater than 15%. Since the government can only hold you liable for up to 15% of your sales for an undocumented tip, it is possible to declare the 15% but keep an extra couple of dollars out, tax-free. Is it defrauding the government? Not really; it's playing by the rules as set forth. You won't get far asking a hard-working server to meet ethical standards that go over and above the letter of the law -- espeically standards that some of the fat cats they're serving certainly wouldn't bother to meet. Thiis is looked on as the type of income that is lagniappe -- you would declare it only if you are the type of person who declares as income your kitchen-table poker winnings, door prizes from the office party, or the $20 your friend loaned you to cover your bar tab. It's not demanded and it's not necessary. It's also a way to cushion against the inevitable 5 or 10% tip you will get left by Europeans (who come from places where tipping isn't customary and seem to have trouble accepting the idea when in the US) or Americans who are just cheap. Since you are taxed on those sales, too, you do have a few bucks you're entitled to that you won't see if you declare all your cash.

4. Abuses are rare. Sure, occasionally they do happen. Some servers do change tip amounts on checks by all accounts, but in 8 years in 4 restaurants, I never saw it happen. (These were decent places, though, not chain-restuarant mills. I can't say what goes on there). IN any case, if you receive your statement and it shows an altered amount, it's an easy fix - your credit card company will investigate, the restaurant will produce the records, and the fraud will be discovered.

I have seen a few people under-declare their night's earnings. Cash tips make it possible for them to do that (credit card transactions are recorded in the computer and the full amount is always recorded) - but this has no effect on the customer. It's between that person and the IRS.

5. Servers usually leave that night with their night's tips in cash, regardless of how you paid. The credit card tips are tallied and paid to the server out of the cash drawer that very night. Restaurants operate on a just-in-time model for food orders, pay, and accounting - they like the clear and even out the books that very night, and they don't like to sit around holding assets for a couple weeks. So it doesn't make any difference to your server in the timing of their pay.

6. So the upshot: pay how you want. There is a slight advantage to cash, and it is always appreciated, but not enough that you should go to the trouble of paying by CC and then leaving a cash tip just for this reason. It all comes out in the wash. If you have cash, pay the whole bill in cash. If you want to use the plastic, pay the whole bill in plastic. It doesn't mean all that much to the server.
posted by Miko at 9:39 AM on July 3, 2005

On preview, to follow up slapshot57: what you are saying (That you could declare only 10% of sales as a tip) is technically fraud. Declaring less than 15% leaves a server open to an audit. This message is not always clearly provided in training, and even then, people tend to go renegade and hope to not be caught. Most aren't, but I have known two people, a bartender and a server, who were audited for declarations under 15%. To meet tax law requirements you have to declare at least 15%.
posted by Miko at 9:44 AM on July 3, 2005

When I was a waitress, it made no difference to me whether tips came by cash or credit. In terms of the amount I'd get to keep, the form of the tip was irrelevant, but in terms of efficiency, I probably did actually prefer credit. When things got really hectic, lots of cash was a lot harder to keep organized (keeping all the bills neat and in order of value).
posted by roundrock at 10:13 AM on July 3, 2005

In addition to the 15% rules, in GA, the restaurant was required to bring our pay up to minimum wage if we don't make enough tips (came in use on those dead Sunday afternoons when management overstaffed).
Grouse: I guess so, but I never met a sever who declares all their tips. I'm sure it happens out there, but it's the exception to the rule.
posted by jmd82 at 10:14 AM on July 3, 2005

Oh, and by minimum wage, I mean up from $2.13/hr to $5.35/hr or whatever it is.
posted by jmd82 at 10:15 AM on July 3, 2005

Only marginally related, but if you do leave cash, don't think you're doing anyone a favor by leaving exact change: the bill's 40.87, you want to leave 8.00 as a tip (20%), don't leave 48.87. Leave 49. The waiter doesn't go back to the kitchen and pay the 40.87 and keep the 8.00 tip. He pays out all bills at the end of the shift and keeps what's left over so in the meanwhile he's lugging around your &!@^%$* .87 (and the change from every other well-meaning biddy). A pet peeve from my waiting days.
posted by TimeFactor at 10:30 AM on July 3, 2005

The federal government requires you to pay taxes on 15% of your billed sales.

Miko, would you care to say how you arrived at that assertion? IRS publications make it pretty clear that you are required to record your tip income, not your sales, and pay taxes on all of it. 15% of your sales doesn't come into it.

You won't get far asking a hard-working server to meet ethical standards that go over and above the letter of the law

It's not going over and above the letter of the law. It is the letter of the law. Pay the taxes you owe. Most of us do it. Some of us pay taxes even for income not reported on a 1099 or W-2, even when we don't think we would ever get caught for not doing it.

you would declare it only if you are the type of person who declares as income your kitchen-table poker winnings, door prizes from the office party, or the $20 your friend loaned you to cover your bar tab.

That's a pretty convenient moral justification, considering how small these amounts are compared to the extra money in unreported tip income you're getting. (Also loans and gifts from your friend are not taxable income.) And if it really is a small amount, then the amount you would have to pay on it would be an even smaller amount.

The ethical gymnastics some waitstaff use to explain why not paying taxes on all their income is okay (although it is against the law) are quite amusing when one recalls how strenuous they are in insisting that a decent tip always be paid to them (when there is no law, and their arguments are less persuasive on other grounds as well). It doesn't bother me enough to make me tip any less, but it does make me laugh, just like jmd82's juxtaposition above did.

On preview, in GA, the restaurant was required to bring our pay up to minimum wage if we don't make enough tips

That's the law in every state, but I know that doesn't mean it happens everywhere.
posted by grouse at 10:38 AM on July 3, 2005

why should you encourage people not to pay tax? they get tips if they're included with the credit card - paying by cash just helps people avoid paying for things like sewage treatment, education, public transport etc. aren't you helping the less well off at the cost of the very poor?
posted by andrew cooke at 10:40 AM on July 3, 2005

Seems like this is pretty well covered, but I will say that the restaurant will not ever ever ever be able to take a percentage because they get charged for doing credit cards. That's not something a server will ever have to pay for, and if you hear about this going on, make sure to make a big hairy deal out of it, because it's super illegal and the manager is probably just pocketing the cash.
posted by baphomet at 10:43 AM on July 3, 2005

grouse: Miko may be referring to "compliance"- the government does require you report 100% of your tipped income, but they assume that this is going to work out to about 15% of your sales for that night. Thus a lot of people who make 20% tips can get away with only declaring 15%. In fact, as I recall "compliance"-level tip declaration is around 7 or 8%. That said, it's in the server's best interest to declare 15% of their sales as tips if they plan to stay in the business for a number of years.

As far as justifying not paying taxes go, I personally go with the "minimizing my financial support for the war" line. When the war is over in 20 years, if I'm still serving, I'll probably find something else. The bottom line is that I need the money more than the government does, and I'd rather be spending it myself than letting the government spend it for me.

Also, I too am perpetually bemused by servers who expect a 15% or even 20% tip on anything they do. These people are invariably going to be worse servers than those of us who understand that tipping is completely compulsory. If you expect to get a tip then maybe you'll try to do good work for your table, but you wont care much if you slip up or slack off. But if you understand and accept the fact that you could give your table the best service you possibly could and they still aren't obligated to tip you, it will make you work that much harder to get that tip. Consequently you'll get better tips. I encounter much frustration trying to teach this to my fellow servers.
posted by baphomet at 10:58 AM on July 3, 2005

Miko may be referring to "compliance"

That may be true (and it makes sense), but that's not what she said.

tipping is completely compulsory

You mean optional, right?
posted by grouse at 11:46 AM on July 3, 2005

There is in my neighborhood a restaurant and tavern where the owner routinely is dishonest with her employees in regard to credit card tips. She pays only monthly, and not fully. The first response was to write the server's name at the top of the check. That was not sufficient. Now I strictly tip in cash, and only patronize the joint when a close friend is the server. I won't darken the door when the owner is around.
posted by scottymac at 12:15 PM on July 3, 2005

Every time I pay my bill with a credit card, I just write "cash" on the tip line and it's always seemingly appreciated by the server.

Thank you! I never thought of that. I always worry that the server at the register will think I'm a non-tipping asshole when I leave cash on the table and pay with a card. (Whereas in fact I'm a pretty heavy-tipping asshole.)
posted by sennoma at 12:17 PM on July 3, 2005

grouse: Yeah, that's what I meant. Thanks for the correction.
posted by baphomet at 12:25 PM on July 3, 2005

The IRS uses 8 percent as a guideline for requiring restaurant owners to correct for (what the IRS presumes to be) underreporting of tips by the waitstaff, as described in this "Tips on Tips" brochure (pdf). That percentage has been upheld by courts as reasonable.

The allocation is rather interesting (I think). Assume that a restaurant has (say) $100,000 in sales for a month, and that the waitstaff reports (in total) tips of only $6,000 (on IRS form 4070s) to the restaurant (employer). Then the restaurant must assume that the staff earned another $2,000 in tips, and allocate this [not sure how - hours worked? earned pay?] to the employees. The allocation is reported to the IRS, as well as showing up on W2s - it is essentially implied earnings, it is taxable, and the employer will NOT have withheld taxes against it.
posted by WestCoaster at 2:07 PM on July 3, 2005

Hijack: When you leave a tip, how is it distributed amongst the service staff? I used to be a 10% tipper, after doing some back-of-the-napkin math revealing that if the server personally kept all tips in a semi-nice establishment, he'd be paid very well. Then a friend told me that the tip not only covered the server, but also busboys, dishwashers, basically all the service staff, and I started tipping 15-20% after some revised back-of-the-napkin math. What's the real deal?
posted by trevyn at 2:15 PM on July 3, 2005

trevyn: Depends on where you live and the establisments. In some states, like mine, tip sharing is illegal. However, it's still done extremely frequently. In pretty much any restaurant you go to, the server will be tipping the bartender for 10% of their liquor sales, so if you get three drinks at $4.00 apiece, they're going to "owe" the bar about a dollar. At most places servers don't have to tip the bar, but you can imagine what happens if they fail to do so consistently.

Tipping out the bar is the only consistent and standard tip-out the server will have to do. Some places have bussing staff to reduce server workload, so naturally the servers should tip them out based on the same principle as above. Some places don't have bussers but the host staff occasionally fills this role, and so tipping them out applies. Some places make you tip the host stand even if they don't bus your tables (but most don't). Some places even make you tip the cooks. It really depends on the establishment, so the best thing to do would be to ask your server.
posted by baphomet at 5:09 PM on July 3, 2005

Typically, you give 5-10% of your earnings to each member of the support staff - bartender, busser, food runner, and whoever else is part of the service. You also usually supply your own uniform clothing (or buy it from the restaurant, if it's something other than black-and-whites), shoes, check pads, pens, and change bank.

Yes, in a nice place you do get paid for very well for waiting tables. That's why nice places have the best servers. Keep in mind, also, that servers are not getting any benefits for their employment. They are paying their own health insurance, dental bills, and eye care. People in service jobs, particularly higher-end restaurants, are aspirational people. They're students, grad students, moonlighters saving for a house or a move, business owners seeking to increase their cash flow, etc. They do this because the money is a fair recompense for work that is intellectually and physically demanding. I'm constantly amused by hearing about perspectives on restaurant work from people who have never been in the field. Applying ideas from other business models just doesn't work -- it's a different animal.15-minute breaks every 4 hours in an 8-hour shift? They don't really exist. OSHA? Nice thought. Overtime? Now you're really making me laugh.

And grouse, yes, I did mean compliance. And I have absolutely no compunctions about 'justifying' the universal tax practices of servers. You have to be on a pretty high horse to hassle a waitress about a couple of bucks a shift. Again, I sure hope you declare your lottery scratch-off winnings and holiday turkeys from your employer if you're that legalistic. Anyway, I am simply reporting that the waitstaff philosophy is that, since the IRS can never really hold you accountable for more than 15% of sales because it's never a safe assumption that you made that much (let alone more), you're safe from an audit in not declaring more than that. I'm not saying it's right; just saying it's not likely to cause trouble.
posted by Miko at 5:13 PM on July 3, 2005

Tipping out the bar is the only consistent and standard tip-out the server will have to do. Some places have bussing staff to reduce server workload, so naturally the servers should tip them out based on the same principle as above. Some places don't have bussers but the host staff occasionally fills this role, and so tipping them out applies. Some places make you tip the host stand even if they don't bus your tables (but most don't). Some places even make you tip the cooks. It really depends on the establishment, so the best thing to do would be to ask your server.

This is wildly different from my experience - in all 4 fine dining places where I worked, we did tip bar, bus, and runner at the minimum - it was required. I've never heard of tipping the cooks.

When people start cheaping out over 10 and 15 dollar tips, they're not realizing that a tip is less a judgement on service than a payment for being able to sit down and have a pleasant person manage your order and time your meal. This is the person's wages, and it's what the service costs. Without the tip system, food prices would be 25% higher, as they are in Europe, easily. So it's actually a bargain. Or you can go down to the fried-seafood shack and line up and order your own and eat it at a picnic table and forget the tip thing entirely, if 15% of the bill seems like too much to you.
posted by Miko at 5:18 PM on July 3, 2005

Cash vs. credit made no difference, since we were given our credit card tips at the end of the night in cash from the front - so we could then tipout the other staff. But credit did show up when declaring tips, yes, like Miko explained. Credit simply meant less cash to carry around, and less chance of cash tips on the table going "missing" (that hardly happened, though, but there was the chance of it).

At the place I worked at, tipouts were 10% to the front (bartender, who handled almost all drinks for us, alcoholic and non, and handled the cash register exclusively) and 15% to the bussing staff, split up between them. Every place is different; some people I knew at other restaurants had to tipout the kitchen staff, or the hosts, or even the managers, and some places made the servers pool tips and split them up between them all. The way my restaurant did it seemed fair enough although the bussers did tend to get shorted some, unfortunately. So if you're at a place where you're being bussed by someone other than your server, and they're really on point with getting you water and clearing your table promptly, you may want to slip them a couple bucks in hand. If you're feeling generous.
posted by Melinika at 5:24 PM on July 3, 2005

Thanks everyone for the great comments. I marked Miko's long post as the best, but really they're all good.

To follow up on something TimeFactor said, if paying by credit card, is it better to leave a whole dollar tip, or tip so that the total comes to a whole dollar? (of course, for us numerically obsessed types it's an either/or proposition). If the results are only tallied and paid out at the end of the night, then the nice round tip number doesn't really matter, I would think. So much for years and years of tipping nice round numbers ...
posted by intermod at 8:51 PM on July 3, 2005

Or you can go down to the fried-seafood shack and line up and order your own and eat it at a picnic table and forget the tip thing entirely, if 15% of the bill seems like too much to you.

I consider myself to be an OK tipper (generally the number left of the decimal point times two), but I can't say that even the majority of my dining experiences have me convinced that it's worth it. I can't count the number of times I wanted to just get up and refill my drink myself, or pick up my food that I can plainly see sitting there. It's only when I'm physically tired that I actually feel it's worth it (there are of course other reasons other than perceived value to tip).

But admittedly I don't do fine dining often. An active toddler somewhat precludes it.
posted by RikiTikiTavi at 3:49 AM on July 4, 2005

A side note - for a quick rule of thumb for most dinner bills: Double the first digit to calculate a tip. If the bill comes to $55.38, tip $10.00. Do this only if the bill is more than $30. This gives a tip which varies between 16 and 19 percent.

(Do it for a bill under $30 but then add a buck.)

Doing the same for an amount over $100 means it is regularly about 19-20%.
posted by yclipse at 6:59 AM on July 4, 2005

When people start cheaping out over 2 and 3 dollars worth of income tax, they're not realizing that taxes are less a judgment on whether you agree with government policy than a payment for being able to live in an enjoyable environment with police, public education, public transport, health services and other services. This is the government's income, and it's what these services cost. Without the income tax system, goods and service prices would be 25% higher, as they are in countries that rely more on value added tax, easily. So it's actually a bargain.

Or you can go down to some country full of crime, crumbling infrastructure and people dying of horrible diseases everywhere, and forget the tax thing entirely, if 15% of your tips seems like too much to you.
posted by grouse at 8:27 AM on July 4, 2005

grouse: Hasn't the Bush administration worked pretty hard to cut taxes over the past few years? Their reasoning is that if the American people are in charge of that money then they'll spend it in ways that will help to expand the economy. Unfortunately I don't make enough to take advantage of Bush's tax cuts, but I still want to do my part, dammit! Think of it as giving ourselves the tax cuts necessary to do our part for the American economy. Really, we're patriots.

And it's 15% of sales. We've been over this. You're supposed to report 100% of your tips, which they figure will be at minimum 8% of your sales, and reasonably a maximum of 15%. Reporting 15% of your tips can get you in serious trouble if you do it for long enough.
posted by baphomet at 9:05 AM on July 4, 2005

baphomet: Ha. I assume we are talking about people with between $7,151-$29,050 in income, in which case the tax is 15% of the marginal tip income. You have to report 100% of your tips, but you have to pay 15% of it.
posted by grouse at 9:34 AM on July 4, 2005

The WaiterRant take on this:

8. PAY IN CASH! – If at all possible pay in cash. The owner will love you. The waiter will love you. Why? Credit card companies charge a fee for every transaction. (Some unscrupulous owners take the transaction fee out of a waiter's tips. It's illegal but it happens.) Now I don't always pay in cash when I go out. I'm not unreasonable. But leaving the TIP in cash will always make you the waiter's friend.
posted by Melinika at 9:31 PM on July 13, 2005