Dear Vi,

What is the deal with tips vs. service charges?

Carol S., Baton Rouge, LA

Dear Carol,

Tipped employees earn $2.13/hr (half the minimum wage plus 1 cent) with the idea that tips will add up to the minimum wage of $4.25/hr. Tips are the property of the waiter and s/he is accountable for the taxes. The IRS says waiters earn 8% of the gross sales of the food they served. Service charges (or S.C.'s) are considered the property of the owner. With a service charge a waiter must earn at least minimum wage and does not automatically receive any additional earnings from the service charge. Taxes are paid by the employer.

The snag instituting a service charge is the Guest. Americans hold freedom dear to their heart. They want to choose how much tip to leave for services received and resent being told what to do.

S.C.'s work best in clubs where guests are members and accustomed to paying automatic gratuities of 15% to 18%. Restaurants face the problem of catering to the general public who can (and will) go elsewhere to get what they want.

In a recent poll, waiters in restaurants said they prefer to work for tips because they earn more than owners are willing to pay while waiters in clubs preferred a set hourly wage.