Who is getting your tip?

Tipping in Australia is discretionary. It is not required as a wage supplement but is a good way of showing one’s appreciation for staff who provide excellent service. But when you add a tip to your credit card account – who gets the funds?

By Jeremy Ryland


“Would like to leave a tip?”


This phrase at the end of a meal, when accompanied with an EFTPOS machine, leaves many of us anxious and confused. Especially if you are in a small eatery rather than an upmarket fine diner. Research shows that about 80 per cent of Australians are confused about whether or not they should leave a gratuity. And most, hit the “no” button, enter their PIN and leave quickly – often feeling less happy about their meal than before.


There has been a lot of debate over the past years about tips and service fees. In Australia, tips are generally not required. Food is generally quite expensive in Australia and already includes a margin to pay wages. Our wages are sufficient to pay our staff. But many people still tip if they get excellent service.


However, overseas, tipping is much more common, especially when wages are low. For example, in the USA, the average hourly rate for a service worker is much lower than in Australia. The minimum wage in Australia is AU$18.93 per hour – in the USA it is about AU$10 an hour, although it varies from state to state. Moreover, the USA does not have penalty rates or casual loadings – so Australian service workers earn significantly more.


Many years ago, I worked for a company that has restaurants both in Australia and the USA. At the time, we were paying our Australian service staff about $18 per hour whilst our US staff received about $7 an hour – for the same work. Tips in the USA were an important part of the mix and, if we ate in one of our restaurants free of charge, we were still expected to tip at the equivalent rate.


So tipping in some countries is important to the staff earn a reasonable wage. And in the US, 15 - 20 per cent of the bill is seen as normal these days.


But what about in Australia?


Australians are certainly not seen as the world's most generous tippers, which is probably because we are not used to it. But it’s always nice to leave a tip. "It's expected more and more - and it's a nice gesture to reward a great waiter who's stood on his or her feet for hours and has made sure you're comfortable."

So – how should you tip?


If I tip – and I don’t always – I always tip in cash. I don’t add a tip to the credit card bill, which is increasingly common today. This is because when I was a young service worker, credit cards were not so common, and when someone did put a tip on their card, we, the service staff, never saw the benefit. It was simply absorbed into the venues accounts.


So I asked a few service people what happens today. People I know in well known premium venues, as well as at small local cafes and pubs – and most said that nothing has changed. When someone adds a tip to the bill on a credit card, invariably it goes to the venue. And this was most common in the larger premium venues. Recently, former employees of one high profile restaurant group claimed their tips were reduced and used to pay for glass and crockery breakages "in accordance with standard industry practice".


This practice is no different from underpaying staff, about which we have seen a lot in the press recently. It is stealing! A guest, particularly in Australia, is usually tipping an individual. I, like most people, have no problem with tips being “pooled” and shared amongst the staff – including the back-of-house staff – but it should be shared. It is not additional funds for the restaurant.


Today, when presented with an EFTPOS machine, at the table, it is easy to simply press the 10 per cent button and assume that the money goes to the staff. But obviously this is not always the case – and this is why I tip in cash to the person providing me with the service I wish to reward.


As an aside – one needs to be careful when presented with an EFTPOS machine. A friend of mine recently had left his glasses behind, and when it came to pay the bill, presented his card and then input in his PIN number – which was debited as the tip! He could not read the screen and did what he usually did with an EFTPOS terminal. Luckily his pin was a small number 0506 - $5.06. Mine begins with “99..”!


So, is tipping necessary? 

Even in the USA, there is a move to stop the practice. Danny Meyer - who owns many restaurants in America - doesn't like tipping. He has said that the practice lets restaurants get away with paying servers insufficient wages and has called it "one of the biggest hoaxes pulled on [American] culture." He says that it is discriminatory and does not improve service standards.


He has attempted to eliminate tipping at restaurants in his Union Square Hospitality Group and raise prices in an attempt to give all of his employees more stable and equitable wages. Whether this has been successful is under review and difficult in a culture that is used to tipping. But higher wages for hospitality staff are important.


And what about service charges? 

There was a time that a number of restaurants in Australia charged a “service charge”. But this was unpopular and seen as unnecessary so most dropped it. However, many venues still charge a service charge for groups – tables of eight or more.


Technically, a service charge may be fairer, as it can be shared with all of those responsible for your meal – including the chef and the dishwasher.


But again, who gets these funds? Are they distributed to the staff or are they simply used by the restaurant to pay for the wages – which they have to pay anyway?


When you give a tip or pay a service charge – who are you rewarding? And remember, tipping in Australia is about rewarding good service – if the service is poor, or even just average, don’t tip. And tell the restaurant why.