Automatic Gratuity

[thaithaibishop]

• Why is automatic gratuity not mentioned in the report on its own and is “service fees”? Since it’s gratuity… Tips… it should just added to the tip total or at least under the tipping section of the report. 

[Ria]

Hi @thaithaibishop - Welcome to The Seller Community, it's always nice to see a new face 😊

Great Question.

Ultimately, this is due to the fact that auto gratuity is classified as a service fee because it is automatically charged by the business rather than being an incentive for a service provider the way a tip is technically disbursed. 

If you'd like to see this feature reconstructed, a great place to share your request is our Ideate Board. Our engineers love to get feedback on possible new developments in the platform and other sellers love to collaborate on advocating for these changes there.  

As always, feel free to stop by The Community with question, concerns and even feature requests. We are more than happy to assist. ✨

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[dfxx]

On the point of the IRS's classification of automatic gratuity as a service charge, there are a couple of debatable aspects worth considering:

1. Voluntary Nature of Gratuity: Despite being labeled as "automatic," these gratuities retain a voluntary element, as customers can request adjustments or removal if the service does not meet their expectations. This flexibility underscores the gratuity's nature as a discretionary reward rather than a mandatory service charge, challenging the IRS classification.

2. Legal and Regulatory Variations: The interpretation of automatic gratuities varies across different jurisdictions, with some legal precedents and state laws treating them differently from fixed service charges. This inconsistency highlights the need for a more nuanced approach that considers the operational realities and legal frameworks of different regions.

[dfxx]

Dear Square Community,

I hope this message finds you well. I'm reaching out to share a concern and a feature request that could significantly improve the way we reconcile our finances at the end of the business day. Our team is currently facing a challenge in distinguishing between automatic gratuities collected through cash and those via card payments. This issue makes it difficult to accurately determine our cash intake from automatic gratuities, differentiate additional tips, and identify any potential discrepancies.

Moreover, we've identified a need for more detailed reporting on credit card processing fees, specifically related to automatic gratuities. Currently, the overall processing fees for all card transactions are provided without a breakdown of fees applied to automatic gratuities. Having visibility into the total credit card processing fees for automatic gratuity separately from other transactions would enable us to understand our costs better and manage our finances more effectively.

The addition of features that offer:

1. A clear breakdown of automatic gratuities by payment method (cash vs. card).
2. Detailed reporting on credit card processing fees specifically for automatic gratuity transactions.

It would be invaluable for our business and, we believe, for many others in the community facing similar issues. Accurate and detailed financial data is crucial for running our operations efficiently, and these enhancements would greatly assist in our management processes.

Is anyone else experiencing these challenges? Have you found any workarounds or methods to track these figures accurately with the current system? Additionally, how can we bring this to the attention of Square's development team for potential inclusion in a future update?

Thank you for considering this request and for any support or guidance you can provide.

[Donnie-M]

@dfxx on your automatic gratuity, is it triggered by a party size? or certain service?  Does it apply and then the customer can add additional tip?

According to the IRS, automatic gratuity a service charge, not a tip, as of 2014. Service charges are treated as regular wages and are subject to payroll taxes.  I think this matters a lot in how you would want this reporting.

As far as the credit card processing fees, yes they are charged on every dollar taken in on a CC.  If you are trying to break down these charges, I would question why you need to know the cost just on the automatic gratuity?  Are you trying to charge this back to the servers?  etc. 

What I am trying to get is a little more detail into how you operate to see if the ability to parse out these charges would work for you.  I am pretty sure there is some reporting from the online dashboard that could break these down for you, depending on your use case scenario.

Also, this is the best place to get the attention of the devs.  When we have a good conversation, it will get noticed more quickly.

[dfxx]

Thank you for your thoughtful response and for raising some important questions about the operation and financial management aspects related to automatic gratuity.

Firstly, the automatic gratuity in our establishment is added to all bills, irrespective of party size or specific service, with customers having the option to leave an additional tip if they desire. 

On the point of the IRS's classification of automatic gratuity as a service charge, there are a couple of debatable aspects worth considering:

1. Voluntary Nature of Gratuity: Despite being labeled as "automatic," these gratuities retain a voluntary element, as customers can request adjustments or removal if the service does not meet their expectations. This flexibility underscores the gratuity's nature as a discretionary reward rather than a mandatory service charge, challenging the IRS classification.

2. Legal and Regulatory Variations: The interpretation of automatic gratuities varies across different jurisdictions, with some legal precedents and state laws treating them differently from fixed service charges. This inconsistency highlights the need for a more nuanced approach that considers the operational realities and legal frameworks of different regions.

Regarding the credit card processing fees on automatic gratuity, our interest in understanding these costs ia important as any other - we want to know how much we're spending on what. It seems to be adding up quickly since implementing and we may consider reducing our starting wage to compensate.

Your insight about existing reports on the online dashboard is appreciated, and we continue to seek solutions that offer the detailed breakdowns needed for accurate financial management - although the custom reporting offers a much to be desired "custom" with very little options. The challenges in distinguishing between item sales and automatic gratuity in cash transactions remain a significant hurdle for reconciling our cash drawers accurately. Currently there is no way to know how much of the cash payments received came from items vs. automatic gratuity except for going through each single transaction. When there are hundreds, that's just not feasible. 

[Donnie-M]

@dfxx That was a wonderful read and very informative and does give me some info that I will see if there is any other way to help you.  

As to point 1 on the IRS classification:  This may indeed be a nuanced work around as the fee is optional much like the way square adds the suggested tip to online orders and the customer can change it to 0.  

As to point 2:  Yes this totally depends on the state you are in.  New York or California, might be much more restrictive than say TN.  We still have the 2.13 an hour tip credit wage which I abhor,  I think minimum wage should be minimum wage even with tips.  It really would simplify things and improve service from my experience.

[sbrockz]

Right now the Auto Gratuity is combined into Net Sales

We understand for the Retail but for restaurants they need to be under the Tips not under the Net Sales or Gross Sales 

As legally we have to give those auto gratuity as tips to the servers.

Thank you

[Katie_SQ]

Thanks for reaching out, @sbrockz!

I’ve gone ahead and merged your post to an existing thread on the US Seller Community where other Square Sellers have discussed Automatic Gratuity reporting. As mentioned by DONNIE-M in this thread, Automatic Gratuity is considered a Service Charge by the IRS, so it’s classified and reported separately from standard tips.

I hope this information is helpful but please do let me know if you have any additional questions.

[sbrockz]

I understand that Katie

But the issue here is that our restaurant reports Standard Tips to the IRS also because we subject our employees to the payroll not just for wages but also tips.

So we should have a option for Automatic Gratuity to be reported under the standard tips or not.

This way when we are doing employee payroll it is so much easier, now I have to go into Tips and also Automatic Gratuity from Team sales report.

I cannot make a custom report where I can see the complete amount including (Automatic and Also Standard Tips)

Secondary issue is that YOU guys count it under Net Sales. Net Sales is something Restaurant takes home after the tax and fees but technically it is not correct, we don't take Net Sales home because you are not excluding Automatic Gratuity.

[sbrockz]

cc: @Donnie-M @Katie_SQ