Is an automatic service fee, charged by some restaurants in New Jersey, essentially the same thing as a tip?

Not necessarily, according to the New Jersey Business and Industry Association.

Coming off the height of the COVID-19 pandemic and with inflation at highs not seen in decades, at least a few businesses have added such fees to dine-in bills.

Some add the fees to try and counteract credit card processing fees on each transaction, which have also been steadily rising, an NJBIA spokesman said to New Jersey 101.5.

As customers are not required to leave a tip — other restaurants and bars might use automatic gratuities to help ensure staff are compensated fairly.

One such recent case was in Hudson County — at a Cajun-style restaurant in Bayonne that sparked split public reaction.

An 18% service fee has been added to dine-in bills at the Hook & Reel, according to a Facebook post within Bayonne Talks, prompting over 300 comments before the private community group closed further discussion.

A number of commenters said that it was a sign that people had been failing to tip appropriately, while other commenters said they don’t believe they should be “forced” to tip a certain amount.

Within the same Facebook thread, those who are or have been servers pointed out that 100% of tips don't stay with one individual, but have to be shared among others at the establishment, such as bartenders and bussers.

A request for a response from the restaurant was not answered as of Tuesday.

For tax purposes, even if those automatic fees are going to restaurant staff, they cannot be considered tipped wages.

Automatic gratuities are allowed under federal labor laws, though a service charge cannot count as a tip credit against employees' minimum wage.

Employers must take out payroll taxes from automatic service charges before distributing them to staff.

Another difference is that such employers can take a tax credit for tipped wages – but not for service charges.

(Getty Stock)
(Getty Stock)
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Bad tipping on the rise

Has tipping really gotten to be a dire situation?

Americans are worse tippers now than before the pandemic based on a recent survey from CreditCards.com — which also suggests the issue is partly generational.

While 77% of "Gen Xers" (ages 42-57) and 87% of baby boomers (ages 58-76) in a recent survey said they “always tip restaurant servers,” just 52% of "Gen Zers" (ages 18-25) and 60% of millennials (ages 26-41) said the same.

More than four in ten (43%) combined Gen Z and millennial restaurant-goers leave nothing at least some of the time, according to the survey.

The average tip amount was 20% across all generations in the same survey — as "Gen Xers" leave an average tip of 20% and “boomers” give 19%, on average.

Erin Vogt is a reporter and anchor for New Jersey 101.5. You can reach her at erin.vogt@townsquaremedia.com

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