Understanding Service Charges for Restaurant Owners

Service charges, a customary practice in numerous industries, have become far more common in the cost-intensive, low-margin restaurant business in recent years.

A service charge is a fee added to a customer’s bill to cover various aspects of service on top of the cost of goods (i.e., food and beverage). Service charges can serve multiple purposes depending on the restaurant’s policies, from supplementing staff wages to offsetting operational costs.

While service charges are legal, they’re often misunderstood — and somewhat controversial. Diners don’t love being surprised at the end of a meal with an unexpected fee — especially if it’s not clear what the fee is actually for or where it’s going. Many assume it’s a tip (it’s not!), which can negatively impact employees’ take-home pay.

While service charges can be useful for operators who are fighting an uphill battle against inflation or staffing issues, it’s critical to understand exactly what a service charge is (and isn’t), how to implement one, and what to consider when it comes to compliance and reporting.

What is a service charge in the restaurant industry?

In the restaurant industry, a service charge is a mandatory fee that gets added to a customer’s bill. This fee is typically a fixed percentage of the total bill amount and often ranges from 10% to 20%.

It’s important to note that a service charge is not a tip or a gratuity, which are voluntary amounts left by customers in appreciation for service provided. Instead, a service charge is a mandatory charge, often used to cover the costs associated with providing the service, such as staff wages, maintenance, or administrative costs. These charges are common practice in many restaurants, particularly in fine dining or restaurants with large numbers of staff.

As Beth Schroeder of Raines Feldman LLP explained in her recent Hot Tips & Takes interview, the proceeds of service charges are the property of the restaurant to do with as management sees fit.

Service charges for restaurant owners can help to:

Compensate for staff expenses: One of the primary reasons many restaurants implement a service charge is to help cover staff salaries and benefits. While tips can often supplement these costs, they are not always reliable and can fluctuate greatly. Service charges provide a more consistent and reliable revenue stream, ensuring that restaurant staff are compensated fairly for their work.
Maintain high service standards: Service charges can also be seen as a reflection of the superior service offered by the establishment, as they’re often found in high-end restaurants where exceptional service is part of the dining experience. Funds generated through service charges can be used to invest in training and development programs for the staff, helping to maintain high service standards.
Balance food costs and pricing: Implementing a service charge can help balance the cost of high-quality ingredients with competitive pricing for the customers. Restaurants operating in a higher price range often use premium ingredients, and a service charge helps offset these costs without needing to increase menu prices significantly.
Share tips equitably among staff: In many establishments, tips are shared among the service staff only. By implementing a service charge, restaurants can ensure a more equitable distribution of tips among all staff members.
Offset the cost of bottle service: For restaurants offering bottle service, the associated costs can be substantial. This service often involves premium liquors and additional staff to cater to the table. By applying a service charge, restaurants can help offset these costs.
Facilitate large group payments: Service charges are particularly advantageous when catering to large groups or events, such as banquets or parties. A preset service charge can ensure that the staff is equitably compensated for their time and effort and that costs associated with special decorations or other incidentals are covered.
Address split meal charges: When large parties dine together and split bills, it creates additional work for service staff. A fixed service charge helps compensate for this increased workload.
Accommodate delivery fees: One last case where service charges are common is in covering delivery fees. As food delivery has gotten more popular, restaurants have had to bear the cost of partnering with food delivery platforms. These platforms charge a significant percentage of the order total as their fee. By incorporating a service charge, restaurants can manage these expenses without having to compromise on the price or quality of their food.

What’s the difference between a service charge and a tip or gratuity?

While this can be confusing to diners, service charges and tips/gratuities are not the same. The key differences between a service charge and a gratuity:

Service charges are compulsory. Service charges are mandatory and non-negotiable. Tips, on the other hand, are not required. Yes, they’re often expected — and many hospitality employees rely on them to increase take-home pay — but ultimately, tips are discretionary and generally based on the quality of the meal and service.
Service charges are a set percentage of the bill. A service charge is a fixed percentage of the total cost of a meal as determined by the employer; it generally ranges from 10-20% of the bill. With tips or gratuities, while 15-20% is a customary percentage of the bill, the amount is completely up to the customer.
Service charges belong to the employer. Service charges can be used to increase staff wages, but ultimately, it’s the employer’s call as to where those funds go; operators might choose to use a service charge to offset other costs of doing business. Tips, on the other hand, belong solely to employees. Employers can implement tip pools or tip shares to distribute tips more equitably among employees, but it’s illegal for them to keep any portion of tips from any employee.
Service charges are categorized differently by the IRS. When a service charge is used to increase employee compensation, it’s still not considered a tip. It must be reported as a “non-tip” wage.

Tipping on top of service charges

It’s important to understand that tipping is also still typically expected on top of the service fee.

Again, though a service charge can contribute to the staff’s wages, that’s not always the case. Employers might use service charges for other costs of doing business. When this happens, “service charge” is a bit of a misnomer; that is, customers may (reasonably!) assume that the fee is going to the person or people who provided the service. As a result, customers might be less inclined to leave a tip.

That’s why it’s important for employers to clearly communicate to both customers and employees how the service charge is being used. If it’s unclear, and the charge isn’t being used to increase compensation, it’s likely that employees will miss out on tips. .

What is an automatic gratuity or auto-gratuity?

Automatic gratuities are service charges, not tips or gratuities. (Confusing, right?)

Automatic gratuities or auto-gratuities are perhaps even more of a misnomer than “service charge” — in fact, some legal professionals advise employers to avoid using the term altogether.

Here again, customers will often assume that their service provider is the recipient of the automatic gratuity (and choose not to leave a tip on top of the auto-grat). Because auto-gratuities are service charges, they belong to the employer. While they can be brought in as non-tip wages for employees, they can also be used for other operating expense.

How service charges impact restaurant employees

Service charges have a significant impact on restaurant employees, affecting their overall income, the perceived value of their work, and job satisfaction. Here are some of the ways service charges influence employees:

Income Structure: When paid to the employee, service charges can provide more stable income for employees because they don’t fluctuate like tips.
Pay Distribution: When they’re distributed, service charges are usually divided amongst all staff, including non-tipping positions such as cooks and dishwashers. This can lead to a fairer distribution of income.
Reduced tip earnings: This may not be problematic if service charges are being paid to the employee. However, as noted above, customers might be less inclined to tip on top of a service charge, which can hurt employees who rely on tips as a significant portion of their wages.
Motivation and performance: Given the compulsory nature of service charges, some employees might feel less motivated to provide excellent service, as their earnings are not directly tied to their service quality. On the other hand, it might also alleviate some pressure, allowing employees to focus on providing consistent service without the stress of variable tips.

If a service charge is primarily used for fair wage distribution among employees, it can have significant implications on their wages and tips. This practice can ensure a more equitable wage structure, especially in establishments where behind-the-scenes staff, such as cooks and dishwashers, typically do not receive tips.

Using the service charge for paying employees can bring a sense of fairness and stability to restaurant wage structures, but it also requires clear communication and understanding from both employees and customers to function effectively..

How service charges impact restaurant customers

Service charges offer several benefits to restaurant owners and staff, but also have implications for the customers. These include:

Reduced tipping: Customers may believe a service charge is a substitute for a tip and reduce or eliminate their gratuity. Customers may also feel that a mandatory service fee reduces their control over rewarding good service, traditionally reflected through their tip.
Surprise costs: Customers unaware of a service charge may be surprised or frustrated when they receive the bill. This could be perceived as hidden costs, which might impact their overall dining experience negatively.
Increased scrutiny of service quality: Knowing that a service charge will be added to their bill, customers might scrutinize the quality of service provided more closely, with customers more likely to be upset by any small lapse in service.

Potential impacts of service charges highlight the importance of clear communication and excellent service, ensuring customers understand the purpose of the service charge and feel it justifies the quality of their dining experience.

Is implementing a service charge worth it?

Implementation of a service charge can have significant implications for a restaurant’s revenue. From a financial perspective, a service charge can lead to a more predictable revenue stream. Unlike tips, which are subject to variability, service charges are fixed and therefore ensure a consistent addition to the restaurant’s revenue.

However, the success of implementing a service charge largely depends on how it’s perceived by customers and employees. If customers feel that the service charge doesn’t correlate with the quality of service, or if it significantly increases their total bill, they might reconsider their dining choice, potentially leading to a reduction in customer frequency and ultimately affecting the restaurant’s revenue.

On the other hand, if service charges are used to ensure fair wage distribution and provide a stable income for employees, it can foster a more satisfied and motivated workforce. This can indirectly contribute to the restaurant’s revenue by reducing employee turnover, enhancing service quality and efficiency, and creating a positive dining environment that attracts and retains customers.

How to collect a service charge at your restaurant

The general process for handling service charges is as follows:

1. Determine how much you will charge: A service charge typically ranges from 10% to 20% of the total bill but can vary based on the restaurant’s specific requirements.
2. Determine how you will spend the funds: The service charge can either be retained by a restaurant or distributed among employees.
3. Inform and train staff: Staff should be informed of how the service fees will be used, how it impacts their income, and how it benefits the restaurant. Proper training should be given to employees, particularly those interacting with customers, to effectively communicate the purpose of the service charge and address any customer questions or concerns.
4. Create clear communication with customers: Customers should be informed about the service charge before they place their order. This can be conveyed through signage at the restaurant, communicated verbally by servers, or noted on menus.
5. Implement the charge: Once all of the above steps are completed, you can start levying the service charge on customer bills. This will involve updating your point of sale system and ensuring all staff are trained to handle the new billing system.
6. Distribute proceeds accordingly: Once you start collecting service charges, proceeds should be distributed to qualified staff members based on your policy. This is something that Kickfin can help with, if you don’t have the ability to cashlessly distribute tips and charges,
7. Ensure accurate reporting: Follow IRS guidelines for recordkeeping and reporting. When paid to employees, service charges should be treated as non-tip wages and are subject to social security tax, Medicare tax and federal income tax withholding.Employers can’t use these non-tip wages when computing the tip credit available to employers because these amounts aren’t tips.
8. Monitor and adjust: After implementing a service charge, be sure to monitor its impact on both restaurant revenue and customer satisfaction. Gathering feedback from customers and staff to identify issues or areas of improvement.

Remember too that it’s crucial that your restaurant remain compliant with local labor and tax laws when implementing a service charge system. This includes understanding how service charges are taxed and how they impact wage calculations. Laws can vary by location, so consult with a legal expert or your local government to clarify any uncertainties and avoid potential legal issues.

How Kickfin can help

Kickfin offers an efficient and streamlined solution for managing tips in your restaurant. Our platform allows you to easily implement, track, and adjust your tipping system, ensuring a hassle-free experience for both your staff and customers.

Kickfin is also designed to be compliant with local labor and tax laws, helping you stay within legal bounds when implementing tips for your restaurant.

To hear more about how Kickfin can help you manage and distribute tips, sign up for a demo with one of our in-house experts.

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Product and Company News

Kickfin Product Updates: New Year, New Features!

We kicked off 2025 with some major (!) updates to our Tip Calculator features.

It was a big release, and we’ll break it all down for you here — but the big headlines are:

More integrations
More speed
More flexibility

If you’re not already using Kickfin — or if you haven’t integrated Kickfin with your POS to automate tip calcs just yet — this is for you! Read on to see how you can use Kickfin’s newest tip calc features to un-clunk your tip pooling process.

More integrations, coming right up

We’re continuing to roll out integrations with the leading POS systems, giving restaurant teams the power to auto-calculate tip pools and shares in a matter of clicks.

(Side note: Kickfin only builds direct POS integrations — not using a third-party solution! — which streamlines your tech stack and keeps your costs lower.)

We were thrilled to add RPOWER to our growing list of integrations, which already includes Toast, Square, SkyTab, SpotOn, PAR and more.

If you’re an RPOWER user and you’re not yet a Kickfin customer, request a demo and we’ll show you the integration in action!

Handle autograts with ease

For servers and bartenders handling large parties, autograts can be great — but for managers, they can turn into a logistical nightmare. Now, Kickfin can help with that…

With this latest release, you can break tips and autograts into separate categories with their own set of rules for distribution. You have the flexibility to manage autograt tip splits completely separate from regular tip outs, so you can fairly reward a hardworking server-bartender-busser trio for a job well done on a 30-top.

Tips & Autograts Broken Out on Tip Data Page

Tips & Autograts Broken Out on Review Screen

With this new set up, you’ll also get more transparency in reporting. You’ll be able to see the breakdown of tips and autograts collected by each user in your reporting dashboards (more on that later!).

Include cash tips in your distributions

You heard that right — we can now distribute shares of cash tips digitally, directly to your employees’ bank accounts. Instead of doing the math on cash tips by hand, you can easily add cash to your tip pool, and we’ll calculate the share among employees for you.

Important note: cash distributions aren’t available for all of our integration partners. Contact us for more info.

Advanced Tip Rules (for even the unruliest policies)

Think your tip policy is extra tricky? Don’t worry — we’ve seen ‘em all. And there aren’t many Kickfin can’t handle, thanks to our Advanced Tip Rules feature.

If you have Advanced Tip Rules enabled, we’ve added a few new capabilities so you can further customize your tip share while we take care of the complicated math behind the scenes. Here are just a few examples of the new features we’re rolling out.

Not using Advanced Tip Rules? Reach out to us if you’d like to enable these features.

Per Segment Tip Sharing

We’ve been calculating tip shares on a check-by-check basis. For example, if you have servers sharing a percentage of tips with bussers, we would only calculate and deduct that percentage if a busser was working at the time that a check was processed. We call this Per Check Tip Sharing.

Now, we’re introducing Per Segment Tip Sharing, which gives you the option to deduct a tip share from every check processed during a shift. Let’s go back to our example — servers sharing a percent of tips with bussers. With Per Segment Tip Sharing, we would deduct a percentage of the server’s tip for every check processed, even if the busser gets cut two hours before the server.

Split Evenly

Would you prefer that all of your support staff take home an even share of their tip pool? We can now make that happen.

Previously, our tip shares entered a pool and were divided among beneficiaries based on how many minutes they worked during a shift, which we call splitting by Time Worked. With our new product update, we’re introducing the Split Evenly option, which enables you to send an equal part of a tip share to every beneficiary that worked within a segment.

More accuracy

In the past, cash autograt payments were lumped in with credit card autograts and credit card tips, resulting in credit card fee deductions on cash transactions. But that is no more!

Now we’re able to deduct credit card fees only where they apply, so you’ll no longer see credit card fee deductions attached to cash autograt transactions.

Plus, we’ve gotten even better at math. With our new update, we can prevent rounding errors, so our tip disbursal should match the tips collected in your POS to the penny.

Revamped and expanded reporting

We added new reporting views to give you more insight into each pay period, individual pay sets, and tip calculations. Here’s a quick look at your new pay period report with expanded filters:

Main Pay Period Report - Filter Bar Expanded

You’ll notice that there are now separate columns for tips and autograts, but you can still view the gross amount earned (tips + autograts = gross).

And it doesn’t stop at the main reporting page. You’ll see this more detailed reporting when you look at individual employee pay period reports, review a specific pay set, or export the information from any of your reporting dashboards.

We know this is a lot of new information to take in — but we’ve got you covered with our full Product Release Recap. Simply log in to Kickfin, click on your name in the upper left corner and select “Support” to access that portal.

Not using Kickfin? Dying to get rid of your old-fashioned gratuity management system? Drooling over these new features? We’d love to have you. Reach out to us today to see how our platform could save you time and money.

Hiring, Training and Retention, Restaurant Management

A Server’s Guide to Managing Large Parties & Securing Better Tips

Do you start getting heart palpitations when you see a large party reservation in your section? This one’s for you.

Maybe your restaurant is a local go-to for corporate dinners, milestone celebrations, and birthday parties…or maybe you regularly get blindsided with 20-top walk-ins when you least expect it.

As every hospitality pro knows, no matter how prepared you are, managing large parties can be tricky. But if you do it right, it can be a fast track to large tips.

So the next time a 20-top bachelorette party drops in and “forgot to make a reservation:” no need to hyperventilate! We’ve got the tips and tricks that can keep you sane throughout a large party — and hopefully help you reel in a well-deserved tip.

4 Tips for Staying Organized

When your 25+ top walks in, getting overwhelmed can lead you to drop the ball on service and hospitality because, hey — you’re just trying to get right right food, to the right person, as fast as possible. But your guests can pick up on when you’re frazzled or frustrated, which can impact their experience (as well as your tip).

Here are a few ways to stay organized and calm throughout service.

1. Get (a little more) familiar with your POS

Every POS system is different, but most have come quite a long way in terms of features and flexibility. There are likely bells and whistles on your POS that you might not use every day, but that can make managing large parties much more seamless.

So use all that tech to your advantage. Set aside time for some extra training or research to understand what your POS is capable of, so that it’s all muscle memory the next time you have a large group sitting in your section.

For example, here are just a few things you should know about your POS as it relates specifically to large parties:

Is there a max number of ways you can split a bill evenly?
How many checks can you create on each table?
How many ways can you split a single item?
Do you need manager permission to add auto-gratuity?

2. Assign seat numbers

The only way to stay sane when dealing with a large party is to assign seat numbers — and stick to them.

You should assign seat numbers starting with your first guest on the left and continue around the table moving counterclockwise. As you put in the first round of drink orders, your POS should allow you to assign items to a seat number. Even if guests move to different seats throughout the meal, stick to their original seat number.

Sure, it’s tedious — but these numbers will be your saving grace when someone asks you for another drink or when they want to split the check by family. No matter how in the weeds you are, take the time to add seat numbers. You’ll thank us later.

When they ask for 15 separate bills, you can just drop each seat number into a new check and print. No need to go back and ask, “who had the fish?”

3. Don’t trust your own memory

As a server, it’s normally a crowd-pleasing flex to take everyone’s order from memory. But when you’ve got 17 people depending on you to make grandma’s 97th birthday lunch a success: Pull out your server book.

Not only are you bound to forget something, but your guests may not feel entirely comfortable either. If they’re worried you’re going to forget they want their sauce on the side, they may be less inclined to ask questions about specials or which dishes are your favorites. And if guests feel like they have to stick to the basics, you’re missing out on all of your upselling opportunities.

Just for the night, don’t be a hero: write down everyone’s order!

4. Bring in some help

Depending on how many guests you have at one table, you might need more help than normal — and there’s no shame in that.

If you’re aware that a big party is on the books, coordinate with your team ahead of time. For example, see if you can have an assigned busser or bartender on call to help you keep drinks filled, tables clean, and guests happy.

Wowing Your Guests

To secure the huge tips that come with large parties, you’ll have to go above and beyond.

Be ready to make suggestions. Being knowledgeable about the menu always reflects well. Explain your specials in detail, offer drink pairings, and accommodate guests with special requests. This is your shot to upsell and increase the bill!

Keep the drinks flowing. No one wants an empty glass. Send bussers around with pitchers to top off waters, and always be ready to grab another round of cocktails.

Stay in contact with the kitchen. Give the chefs a heads up that you’re going to put in a large order so they can prepare accordingly. With more preparation, they’ll be able to get the whole table’s food out in a timely manner. No long waits for everyone to receive their food!

Pre-bus as much as possible. Keep the table neat and tidy, so they have rooms for multiple rounds of appetizers, drinks, and dessert.

Use your seat numbers. You shouldn’t have to serve entrees as if it’s an auction. Instead of announcing each dish to ask, “who had the burger?” you should be able to reference their seat number and pass each entree to the right guest. It’s a simple way to show your serving prowess (and speed up the serving process!).

Even with a crowd at your table, you can go above and beyond on service. Your guests will take notice and show their gratitude on the tip line (more on that later).

Splitting the Bill

You’ve made it through most of the craziness of a large party — but now it’s time to settle the bill. Before everyone closes out their tabs, you might have to navigate a few sticky situations.

Who’s paying?

It’s always awkward to stand next to the table while people fight over who’s taking care of the bill. Here’s what you can do to alleviate some tension:

If someone offers to pay early on in the meal, take them up on it. Go ahead and keep their card so you can run it before the arguments start.
When 3 different people want to pay for the meal, offer to split the bill evenly. They probably won’t take you up on it, but your suggestion should get one of the parties to acquiesce.
Ask how checks will be split at the beginning of the meal to avoid the awkward card dance at the end. You’ll also have an easier time splitting items if you know ahead of time!

To auto-grat or not to auto-grat

Do you want to make sure you get your full 20% tip after a big table runs you ragged? Or would you rather take the risk in hopes that you’ll get an even bigger tip?

If your restaurant has an auto-gratuity policy for large parties, some servers prefer to take the sure thing and hope that your guests feel inclined to give you an extra thanks on top of it. Most guests aren’t offended and even appreciate that they don’t have to do any math — but make sure that they’re expecting the service charge. A simple line like, “We have already included a 20% gratuity in accordance with our large party policy,” goes a long way.

When you have a really fun rapport with a table, it might be the right time to forgo the auto-grat and let your guests decide how much they’d like to thank you. Keep your guests in the know, too! Some may assume that you included gratuity and skip the tip line altogether.

Either way, steel yourself before you look at their final bill. You might be surprised when customers leave less than you expected, or you might be treated to a heavier-than-average tip.

Tipping out

After it’s all said and done, your manager may have a tip out policy for supporting bussers and bartenders who assist with large parties. Make sure you know what to expect to take home after tipping out your team.

And managers, Kickfin makes large party tip outs easy. Make sure that your event bartender gets their fair share of server tip outs, without spending hours with your calculator.

>>Learn more about Kickfin’s newest tip calculation features

Whether you’re hosting a graduation party or taking care of a corporate holiday dinner, be ready to handle it with the same care and attention you give to a two-top — and let the big tips roll in!

Product and Company News

Kickfin Ranked 65th Fastest Growing Company on the 2024 Deloitte Technology Fast 500

We’re thrilled to announce that Kickfin made the Deloitte Technology Fast 500™ list, a ranking of the 500 fastest-growing technology, media, telecommunications, life sciences, fintech, and energy tech companies in North America.

How Kickfin stacks up

Overall, 2024 Technology Fast 500 companies achieved revenue growth ranging from 201% to 153,625% over the three-year time frame, with an average growth rate of 1,981% and median growth rate of 460%.

Our 2,144% revenue growth earned us the 65th spot on Deloitte’s list. It’s another exciting milestone for Kickfin — but more importantly, it’s a meaningful validation of our mission to take the clunk out of tip management, so payouts are faster, smarter and safer for every restaurant team we serve.

Based on Deloitte’s ranking, Kickfin is:

The highest-ranked restaurant tech company on the list
The *only* tip management company on the list
Austin’s fastest-growing tech company

Growth driven by product innovation, demand for automation

Kickfin was the first digital end-to-end tip management solution on the market — and with more than $2 billion payouts to more than 250,000 restaurant employees, we continue to be the largest and top-ranked.

Why?

It comes down to working the way our customers work — and not the other way around. Not only do we automate the tip pooling and payout process for thousands of restaurants and bars; no two tip policies are alike, so we’ve built a solution that gives them the flexibility and customization they require.

With more than $2 billion payouts to more than 250,000 restaurant employees, Kickfin continues to be the largest and top-ranked tip management software on the market.

That’s a big reason we’ve focused on building direct, robust integrations with the leading POS systems on the market. So far, we’ve rolled out integrations with Toast, SkyTab, Oracle, PAR, Heartland and Square — and the list continues to grow.

“In recent years, digital tip management has become table stakes,” said Justin Roberts, Kickfin’s co-founder and co-CEO.

“Operators now understand the significant efficiencies to be gained by eliminating manual tip-out processes. It’s no longer a question of ‘if,’ but ‘how.’ As a direct result of our commitment to innovation and customer success, we’re thrilled to see more and more restaurants select Kickfin to modernize their tip management.”

A big thank-you to our customers who trust us with their payouts, to our partners who support, collaborate (and integrate!) with us, and of course, every member of the Kickfin team.

About the Deloitte 500

Now in its 30th year, the Deloitte Technology Fast 500 provides a ranking of the fastest-growing

technology, media, telecommunications, life sciences, fintech, and energy tech companies — both public and private — in North America. Technology Fast 500 award winners are selected based on percentage fiscal year revenue growth from 2020 to 2023.

In order to be eligible for Technology Fast 500 recognition, companies must own proprietary intellectual property or technology that is sold to customers in products that contribute to a majority of the company’s operating revenues. Companies must have base-year operating revenues of at least US$50,000, and current-year operating revenues of at least US$5 million.

Additionally, companies must be in business for a minimum of four years and be headquartered within North America.

Ready to take the next step?

See how brands like Walk-On’s, Marco’s, Bar Louie and more are automating tip pooling and payouts with Kickfin. Schedule your 10-minute demo today!

Industry Trends

How the 2024 Presidential Election Could Affect Taxes for Tipped Employees

It’s an election year, in case you haven’t heard! 😉 This one has major implications for tipped employees — specifically, when it comes to taxes.

It’s no secret that our Democratic and Republican candidates are running on very different platforms. But when it comes to tip regulations, Vice President Kamala Harris and Former President Donald Trump actually both support reducing taxes on tips.

A little context on taxes and tips

We’re just going to state the obvious: For the average American, tax reporting can be pretty, pretty confusing. For the millions of employees working in tipped occupations — well, that creates another layer of uncertainties.

(Do I have to report my tips? Do have to report my cash tips? Will anyone know if I don’t report my tips? What happens if I don’t accurately or fully report what I earned?)

Historically, there’s been a trend of hospitality employees underreporting cash tips to prevent higher tax burdens. And while this may reduce what employees owe Uncle Sam in the moment, there can be downsides: e.g., if they find themselves eligible for unemployment, if they’re trying to qualify for an auto loan or mortgage, etc.

However, that urge to underreport could be relieved in the near future, given the tax code changes both of our presidential candidates have proposed. The TL;DR: Both Trump and Harris have voiced their intention to relieve some of the burden on tipped workers in restaurants, bars, hotels, and other service positions.

Here’s a quick summary of each candidate’s plan, as well as some potential impacts for restaurant employees.

Trump’s plan for tipped employees

Trump shared his plan to reduce tipped income tax burden at a rally in Las Vegas — fitting for a city that’s built on the gig economy. Nevada is home to the highest concentration of tipped employees who work in the many hotels, casinos, and restaurants that millions of tourists flock to annually.

During the rally, the former president announced that he would make tipped income exempt from federal income tax, stating it would happen “right away” when he takes office.

Since speaking at the rally, Trump has not yet clarified what this would mean for tipped employees. Many servers want to know if this is an exemption just on federal income tax or if the proposal includes payroll taxes (social security and Medicare).

Harris’s tip tax proposal

Harris also took the opportunity to speak on her tipped income policy while visiting Nevada. Much like Trump, she knew she’d have a captive audience when it comes to tipped earnings.

Her proposal promises to exempt tipped income from the federal income tax, but she has made clear that tips will still be subject to payroll taxes. While not yet confirmed, campaign insiders say Harris is considering placing some guardrails on her plan — like a caveat that the tax exemption only applies to employees earning less than $75,000 per year.

Is one plan better than the other?

In short: probably not. (Most service and hospitality workers do not earn above the $75,000 threshold that’s been suggested by the Harris campaign.) So either way, servers, bartenders, and hospitality staff can expect to see a lower tax burden during the next administration.

But what does that look like in practice?

Most tipped employees aren’t receiving their tips on payroll — they’re walking out of every shift with their earnings for the night, deduction-free. Instead, the taxes are paid on payroll out of their hourly earnings, which is why many servers get $0 paychecks every two weeks. With a reduced tax burden, most servers will see the difference in higher paychecks.

On the other hand, economists are wary of the impact of eliminating taxes on tips, citing the reduced funding for social security and Medicare. And with so much negative sentiment around “tipflation” these days, experts also speculate that a reduced tax burden may result in even more hesitance at the tip screen.

Increasing minimum wage

We’re closely following campaign promises about an increase to the minimum wage — especially in regards to the tipped minimum wage and the tip credit.

Minimum wage earners have been eyeing an increase, noting that the federal minimum wage of $7.25 per hour hasn’t increased since 2009, and servers, bartenders, and other tipped employees have been earning $2.13 per hour for over 30 years. An increased minimum wage paired with the reduced tax burden could make a major difference for service workers trying to keep up with the rising cost of living.

In the Harris camp, removing tax on tips is just part of the plan to take some pressure off service workers. While Harris hasn’t shared a detailed plan for bumping up the minimum wage, she has indicated that she would support an increase.

In previous election cycles, Trump stated that he would consider a minimum wage increase, but he has not shared his opinion on the matter during the 2024 presidential campaign.

Of course, we’re a ways out from any real policy changes actually shape — but if you’re looking to make your tip management process less taxing in the interim (see what we did there?), Kickfin is here for you! Check out how you can use Kickfin to auto-calculate tip pools and send payouts directly to employees’ bank accounts in seconds.