If you run a restaurant, catering operation, or any business that adds mandatory service charges to customer bills, you know the headache: auto-gratuities aren’t tips, and your payroll shouldn’t treat them that way.
What’s an auto gratuity, exactly?
An auto gratuity is a service charge a business adds to a bill — like an 18% charge for large parties or a events with a banquet service. The customer doesn’t choose to pay it; it’s mandatory and tacked on to the customer bill automatically. That makes it fundamentally different from a tip, which is always voluntary according to the IRS. Since these amounts are handled differently from traditional customer tips, it’s important to track them separately.
At Patriot, we’re making compliance effortless. We’ve launched two new money types specifically designed to handle mandatory service charges:
- AutoGratuity – Owed: For service charges you’re paying out on the paycheck. It calculates the taxes and adds the amount to their net pay automatically.
- AutoGratuity – Paid: For service charges already paid out (like cash at shift-end). This records the income for taxes without double-paying the employee.
Check out our help article for more information, “How to Pay Tips or Auto Gratuities in Payroll.“