Everything you need to know about how restaurant tipping works

Aug. 29--Tipping seems like a simple transaction between two parties. You eat at a restaurant, you experience good service, and in a show of gratitude you voluntarily leave the server a bonus $5 gratuity, a monetary pat on the back for a job well done.

Of course, reality is far more complicated. That $5 bill, behind the scenes, has been the source of decades of contentious debate, class warfare among cooks and servers, federal statutes, lawsuits and misinformation. Here's our modest attempt to demystify the more-confusing-than-you'd-think process of restaurant tipping.

What's tipping etiquette in the U.S. and beyond?

North America is the only place where an 18 to 20 percent tip at restaurants is the norm. In Europe, many restaurants include a service charge, usually no more than 15 percent. In Australia, you might leave 10 percent at a high-end restaurant. In Japan and China, leaving a tip is considered rude.

How much do Americans tip?

Technomic, the Chicago-based food industry consultancy, released a study in August that showed how diners tip. The company surveyed restaurant customers across the country and found that at full-service, sit-down restaurants:

1%: Don't tip

16%: 10 percent or less

26%: 11-15 percent

44%: 16-20 percent

13%: 21 percent or more

At fast-casual restaurants (Portillo's, Panera Bread, etc.), respondents say they're less likely to tip and/or tip less:

32%: Don't tip

16%: 10 percent or less

26%: 11-15 percent

24%: 16-20 percent

9%: 21 percent or more

At buffets and cafeterias, nearly half of diners tip 10 percent or less, if at all:

21%: Don't tip

27%: 10 percent or less

14%: 11-15 percent

12%: 16-20 percent

4%: 21 percent or more

At fast-food restaurants, 81 percent of diners say they don't tip.

At counter service restaurants, how often do diners drop change in a tip jar?

From the same Technomic report:

16%: Very likely

31%: Somewhat likely

23%: Neither likely nor unlikely

15%: Not very likely

15%: Not likely at all

How does minimum wage factor into tipping?

I'm about to throw a lot of numbers at you, so hold tight. In Illinois, minimum wage for employees who don't receive tips is $8.25 an hour. For the first 90 days of work, employers can pay $7.75. For employees who do receive tips (and have regular interaction with customers), an Illinois business can pay as little as $4.95 an hour. That's because the government allows for something called the "tip credit" -- it assumes customers make up the difference in gratuity to help employers meet the $8.25 minimum. (By the way, tipped employees can be paid as low as $4.65 for their first 90 days of work.) If this sounds appallingly low, know that elsewhere in the country, tipped employees are paid as little as $2.13 an hour.

That doesn't seem much.

According to the National Restaurant Association's 2013-14 Operations Report, for restaurants where the check average is $15 to $24.99 per customer, the median amount a restaurant spends on every full-time employee (including payroll and benefits) is $18,876 a year.

Why don't cooks get tips?

The U.S. Department of Labor characterizes tipped employees as those who regularly interact with customers and receive more than $30 a month in tips. This includes servers, bussers and bartenders -- they're referred to as "front of house" staff. Those who aren't eligible as tipped employees are "back of house" positions -- cooks, dishwashers, janitors. As in, it is illegal for cooks to receive tips, period.

This seems unfair for cooks, dishwashers and janitors.

Decades of American restaurant culture have bred a class divide between the front and the back of house. You can argue one is seen more as a white-collar job, the other blue. There is no doubt a pay disparity between the two, and historically, this has led to resentment under a shared roof. It's an even bigger chasm in states with no tip-credit exemption. In California, servers and cooks both make a base of $9 an hour -- except servers can also receive tips. Some believe the way to solve this is to abolish the tipping system altogether in favor of a service charge. More on that later.

Are tips property of the restaurant?

No. Tips belong to the employee. However, many restaurants have a tip pool policy, in which front-of-house workers cull gratuity at the end of the night and divide it in a shared arrangement. That money cannot be shared with non-tipped employees, such as, say, a salaried sommelier. That's the law; how rigorously restaurants adhere to accounting for this is another matter.

So what happens then?

Restaurants could get sued. In 2012, chef Graham Elliot was sued by former server Gregory Curtis for distributing tip pool money to non-tipped employees. Elliot settled the suit for an undisclosed amount with 14 former servers. The same year, chef Mario Batali and business partner Joe Bastianich also agreed to settle a lawsuit over employee tips. In 2003, service staff employees at Charlie Trotter's filed a class-action lawsuit over the restaurant's distribution of tips. Terms of the settlement were not disclosed.

Can a restaurant pass on credit card fees to the tipped employee?

Yes. Say a credit card company charges a 4 percent transaction fee on a sale. The restaurant can legally take out 4 percent of the tip to offset the fee, as long as it doesn't reduce the employee's pay below minimum wage. In August, Minnesota raised its minimum wage by 75 cents. To offset the hike, restaurant chain Blue Plate announced it was deducting a 2 percent credit card fee from employee tips. The ensuing public castigation was fierce and in support of the workers. Though Blue Plate had the legal right to do this, the chain quickly reversed the policy after the backlash.

How do restaurants distribute tips?

There are two basic economic models, and the differences are those between socialism and capitalism. The team approach is where tips are culled into a pool, then distributed equally (often support staff such as busboys and food runners are tipped out first, before servers divide among themselves). The other system is more individualized, with servers responsible for a set of tables (the restaurant lingo is "station"). The majority of gratuity, under this system, goes to the server. But it also makes wages more volatile -- servers are in essence running their own business night to night.

What are the advantages of the team approach?

It's in the name: Advocates of this system say it engenders team spirit operating toward a common goal. At Arlington Heights coffee shop Mr. Allison's Restaurant, where tips are distributed evenly, head server Jody Navarrete says: "It's not about us, not about my customer or my tip. It's about our customers. We see food ready, we'll bring it out to the table. That's why you'll never see an empty coffee mug." You see this at high-end restaurants too, such as two Michelin-starred Grace: At the end of each service, the gratuity is brought together and, depending on how many employees were on the floor that night, a dollar value is assigned to a one-point figure. Tips are divided based on the worker's position: Lead servers (captains) receive five points, back waiters four points, sommeliers 3.5, food runners 2.5, etc.

What are the advantages of the individual approach?

This is the more popular model. It's a commission-based system with higher risk but also higher reward. The biggest pro is the incentive for servers to be extra attentive during service, to sell that extra glass of wine, to advocate for the dessert, to push that check average up. Under this model, let's say a benevolent customer leaves a $100 tip. After tipping out a percentage to back waiters (the people who fill water glasses, take away plates), the server receives the majority of that $100 tip. The server's wages are also largely dependent on which customers are seated in his or her section. If the diners are a dozen suit-and-tie executives, congratulations in advance. (The flip side is it can lead to squabbling between servers and the host, who decides where diners are seated. A common refrain: "Why did I get the tourists and she got the expense-account suits?")

"Our bartenders and servers act as individual entities while on the floor," said Colin Burke, owner of Wicker Park gastropub The Monarch. "I like my employees to be more independently minded and entrepreneurial within their department. I let them reward themselves." (Burke says twice a year, they hold an all-staff meeting to vote whether to revise their tip policy.) Boka group restaurants also take the individual approach. In addition to the incentive for workers to try their hardest, partner Kevin Boehm said it helps in hiring too: "You'd probably attract more ambitious people."

This still doesn't address the pay disparity between servers and cooks. Is an inclusive service charge the solution?

Some restaurants say the practice of tipping is outdated, if not unfair, especially toward higher-revenue businesses. Restaurateur Jay Porter, writing in Slate, said that at his now-closed San Diego restaurant The Linkery, servers were taking home as much as three times what cooks made even though their base pay was about the same. Vox.com ran a story in July provocatively headlined: "Tipping perpetuates racism, classism and poverty -- let's get rid of it!" Michael Lewis argued against tipping back in 1997, writing in The New York Times: "Tipping is an aristocratic conceit -- 'There you go, my good man, buy your starving family a loaf' -- best left to an aristocratic age. The practicing democrat would rather be told what he owes right up front."

Alinea, Next and The Aviary all tack on a 20 percent service charge in place of tips. (Next and Alinea sells tickets for its dinners, which includes that service charge. The meal is paid for when the ticket is purchased.) Owner Nick Kokonas explains there are several reasons they do this: 1) It narrows the pay gap between servers and cooks. The service charge is not a tip, and therefore back-of-house workers can receive this money. 2) It evens out the peaks and valleys of seasonal wage throughout the year -- employees make the same better-than-minimum-wage pay in busy July as they do during slow January. 3) It makes every worker compliant under the Fair Labor Standards Act, avoiding the legal complications that Trotter, Elliot, Bastianich and Batali went through.

What's stopping all restaurants from establishing an inclusive service charge?

Before Kokonas employed his ticketing system, Alinea averaged 22 percent in tips. Which means the restaurant's pulling in less money now than before he instituted the 20 percent service charge. (A quick note about tickets: They are pre-paid tickets, service inclusive, for dinner at a certain time and date. Think of it as concert or sports tickets, but for a popular restaurant.) But not every restaurant can fill the house like Alinea can five nights a week. Profit margins at most restaurants are historically narrow, and tipping essentially allows restaurateurs to pass the buck of paying servers to the customers. Owners are reluctant to raise hourly wages to non-tipped employees' levels. (They'd also have to pay Federal Insurance Contribution Act taxes on top, because the service charge is counted toward gross revenue. Uncle Sam already taxes tips -- employees must report tip income each month to the IRS.)

The bigger hurdle, though, might come from the customer perspective. The loss of control, even perceived, would be hard to change after decades of standard practice -- "I should pay the server what I deem acceptable" is more palatable than "I must pay 20 percent on my bill, full stop." Plus servers who chase after big tips with their salesmanship might be loath to relinquish that power to management.

I had really terrible service and will leave a 10 percent tip. What happens then?

It's important to remember that tipping is discretionary, not mandatory, even if it has become somewhat obligatory. But here's what happens if you leave a $10 tip on a $100 check at restaurants that employ the individual approach to tipping (most do this instead of tip pooling): More than likely, the restaurant guarantees a set tip percentage for bussers, back waiters and support staff. It's not uncommon for that figure to be set at 10 percent of the total bill. Which means, in your $10 tip on a $100 check scenario, that leaves zero dollars for the server. For someone making $4.95 tipped-employee minimum wage, that server essentially paid out of pocket to serve that table.

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[email protected] -- Twitter @pang

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