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Leadership Watch your gratuity calculation, you might be paying on the government-collected tax

Hugh Latif is a management consultant and the author of Maverick Leadership.

My first job in Canada was as a waiter, and I remember when tips were the most important part of my income. We were paid minimum wage, but that was supplemented with gratuities from customers. The gratuities were distributed and paid according to a set percentage for all the staff of the restaurant which included the kitchen staff and dinning-room staff.

I thought I was a generous tipper when leaving a 20-per-cent gratuity. I sometimes visit the same restaurants where the manager and waiters know me as a regular customer who leaves a good tip. I always receive excellent service and get the best table when reservations are required.

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Payment at restaurants is usually made by credit card. With the old credit/payment machines, customers had to add the gratuity by amount. But now with the new programmable credit/payment machines, restaurants offer you options; you can pay a flat amount or a certain percentage for the gratuity, and many restaurants even offer four options (i.e., 15%, 20%, 25%, or a manual entry).

These options offer the customer the convenience of deciding on the desired gratuity with the push of a button, but there is a catch; the vast majority of restaurants offer an ever-increasing percentage for gratuity and most of them calculate the percentage of gratuity after taxes, not before taxes. Very few customers notice this calculation. The result is that customers end up paying a gratuity on the tax collected by the government!

In addition to this unethical programming of the machine, I discovered that the staff in many establishments do not get the service gratuity in its entirety, but instead the restaurant takes a specific ”cut” from the gratuity customers pay.

What a sleazy way to treat your customers and your employees! You make customers pay gratuity on the tax and don’t even give the entire gratuity to your employees.

Owners and managers of restaurants may reject my “sleaziness” description by saying that the machine offers an override where the customer can enter whatever they like or choose not to add a gratuity at all if they don’t like the given options. In addition, regarding the distribution of the gratuity, by explaining the rules upfront when the owner/manager hires the staff, the employees can choose to accept or not accept the rules of the restaurant. They can simply decline or refuse to work.

Both answers are correct from a strictly legal point of view, but for me they demonstrate a “shady way” of conducting business. Restaurant owners who engage in this behaviour treat their customers in a slimy way because they know most customers will not calculate how the percentage is arrived at, and they bully their own employees to accept rules that are fundamentally dishonest. Patrons want to reward staff for the service they receive. They don’t want to pay the owner or the manager extra.

Moral of the story? Greediness is not a pillar for success in business. But aiming to exceed customers’ expectations, and respecting and rewarding your employees, are the pillars of success. Hopefully you will agree with me in choosing wisely which restaurants to give your money to.

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