Adding Auto Gratuity to Checks
SoftTouch POS includes an Auto Gratuity feature. With this POS feature it’s easy to automatically add gratuity to checks for parties greater than a specified guest count. However, as of 2016, the IRS no longer treats automatic gratuity as tips, but rather as a service charge. There are certain factors that determine whether payments are tips or service charges. According to the IRS, for service charges:
“The absence of any of the following factors creates a doubt as to whether a payment is a tip and indicates that the payment may be a service charge:
- The payment must be made free from compulsion;
- The customer must have the unrestricted right to determine the amount;
- The payment should not be the subject of negotiations or dictated by employer policy; and
- Generally, the customer has the right to determine who receives the payment.”
Restaurants that choose to continue using automatic gratuity will need to report payments as non-tip wages paid to the employee. The IRS reports that some employers keep a portion of the service charges, and only the amounts distributed to employees are non-tip wages.
One alternative to automatic gratuity is calculating suggested gratuity based on a 15%, 18%, and 20% tip rate and adding it to your printed checks. SoftTouch POS can easily do this for you by activating the functionality in Back Office. You can also add other custom content to your printed checks to suit your business needs.
Learn more about SoftTouch POS.