You've probably seen it on a restaurant receipt if you've dined out in a large group: an automatic gratuity charge. Normally reserved for parties of eight or ten or more, the mandatory gratuity (or "forced tipping" for the less generous) is generally around 18 percent of the total bill and has become a staple in the restaurant industry.
And, according to a recent USA Today account, it's becoming more prevalent on cruise ships as well. But are automatic gratuity charges legal? And are those tips really going to crew members, "in recognition of their service?"
Whether an automatic gratuity is enforceable may depend on how it is characterized. In the restaurant industry, a patron may refuse to pay an automatic, mandatory, or suggested gratuity because most courts still consider tips to be voluntary and an add-on for good service. On the other hand, if a restaurant adds a "service charge" to the bill (normally reserved for large groups), that amount will be enforceable, so long as the establishment advises the customer of the charge before the meal.
According to USAToday, some cruise lines are calling their automatic gratuity charges "service charges," and these charges can amount to $23 per day per individual passenger. The lines say this simplifies tipping matters for customers and insures that some behind-the-scenes employees are rewarded for their hard work as well. But there's no guarantee.
Because almost all cruise lines, even those serving the North American market, are incorporated outside the U.S. and their ships are registered under foreign flags, U.S. labor laws don't apply to crew members. A Los Angeles Times investigation found that most cruise line crew members are recruited from some of the world's poorest nations and often earn less than $2 an hour. USA Today reported it can be even worse for some of the crew:
But many workers fall short of those amounts. Aside from the union toehold in the industry, crew members have little protection against low pay and long hours because Critics of the charges say tipping is a personal matter that should be left to passengers. Some see the charges as a thinly disguised method for cruise lines to push the responsibility for paying crew members to their customers. To that point, cruise industry watcher CruiseCritic has reported that some lines now pay housekeeping and dining department workers on ships as little as $2 per day in base wages, relying on the automatic gratuity to provide the great bulk of their compensation. As much as 95% of pay for some cruise ship workers now comes from automatic gratuities, according to CruiseCritic.
Recently, the IRS classified automatic tips as wages under the tax code, meaning they would be part of a server's regular, non-tip wages and therefore subject to payroll tax withholding. In addition, the Fair Labor Standards Act makes it illegal for employer to intercept tips unless they are using them as a "tip credit" to offset the employer's minimum wage obligation to the employee. But, again, virtually no cruise lines are subject to these labor laws, meaning the lines can take automatic gratuity or service charges from cruisers and pretty much do as they please with them.
- What Cruise Lines Don't Want You to Know (CNN)
- Senator Wants 'Cruise Ship Passenger Bill of Rights' (FindLaw's Law and Daily Life)
- Should Tipping Be Banned? — Legal Considerations of Banning Gratuities (FindLaw's Free Enterprise)