Auto-gratuity, explained — and what to do when it's wrong.
The 18-to-20% line on the bill for parties of six or more is the most-misunderstood line item in American dining. Here is what it actually is.
You book a dinner for eight. The check arrives, the bill is $312, and there it is on the second-to-last line: Gratuity, party of 8 — 20% — $62.40. You're staring at the tip line above the total, which has been zeroed out, wondering whether you're supposed to add anything. You're not sure if you're being charged twice. You're definitely not sure if you can ask for the line to come off.
The short answer to all three questions: the auto-grat is the tip; you do not need to add more; and yes, in most cases you can ask for it to be removed, although you almost certainly should not. The longer answer is worth understanding because once you understand it you stop being annoyed by the line.
What it actually is
An auto-gratuity is a service charge applied by the restaurant to large parties. The conventional threshold in the United States is six or more guests, although the cut-off varies — some New York and Vegas restaurants use four; some Southern chains use eight. The conventional amount is 18-20%, applied to the pre-tax subtotal. The line is contractual: by being seated and ordering, you have agreed to it, provided the restaurant disclosed the policy in advance.
Federal law requires that disclosure. The IRS, in Rev. Rul. 2012-18, reclassified auto-grats from "tips" to "service charges" effective January 2014. The relevant rule is that the restaurant must disclose the policy "before service is rendered" — almost always done by printing the threshold and percentage on the menu, near the bottom or by the wine list. If it isn't printed anywhere visible, the charge is contestable.
Why the restaurant adds it
Two reasons. First, the math problem: at a party of eight, the difference between someone tipping 10% and someone tipping 20% on a $400 ticket is $40, and that variation lands on a single server who just did three hours of complicated work. The auto-grat insulates them. Second, the time problem: large parties take longer to turn, the server loses other tables, and the auto-grat compensates for the opportunity cost.
The auto-grat is the most rational tipping convention in American restaurants. It is also the one customers complain about most, because it sits on the bill as a line that wasn't chosen. The voluntary-feeling 20% that people leave on the tip line of a $40 dinner doesn't feel imposed; the same 20%, on the same percentage of the bill, applied automatically to a $400 dinner, feels like a charge. It's the same money.
The post-2014 wrinkle
Because the IRS reclassified auto-grats as service charges, they are treated differently for taxes and payroll than voluntary tips. The restaurant collects the charge as revenue, pays it out to the server as wages (which means it's subject to payroll taxes the restaurant has to match), and reports it on the W-2 rather than the server's tip log. In practical terms, this means servers typically take home less per dollar of auto-grat than per dollar of cash tip, because of the payroll-tax overhead. It also means card-processor fees apply to the full ticket including the grat — another 2-3% the restaurant absorbs.
None of this changes what the guest pays. It does change the answer to the question "should I add cash on top?" The honest answer is: if your server did extraordinary work — handled an allergy, managed a difficult guest, made the birthday work — leaving an extra $20 in cash directly to them is worth more to them than $20 added on the card.
When the line is wrong
Three legitimate reasons to push back, and the script for each.
Wrong party-size count. If the menu disclosure says "parties of eight or more" and you were seven, the charge does not apply by the restaurant's own published policy.
The bill includes a "service charge" plus a tip line you're supposed to fill out. Some chains have started adding both a 4% "kitchen wellness" or "back-of-house" surcharge and an 18% gratuity. That's two charges. If the back-of-house surcharge is itemized clearly, that's the restaurant's choice; you're not being double-tipped, but you should know what each line means.
Bad service so bad you'd otherwise leave the floor. The auto-grat can usually be reduced or removed at the manager's discretion. The Emily Post Institute's guidance — and most modern etiquette desks agree — is that you ask for the manager, explain what went wrong, and let them adjust. Don't try to negotiate with the server.
The simplest rule
Before you do anything with the bill: read every line. The auto-grat is usually labeled clearly. If it's there, it is the tip. The percentage shown is the percentage. The tip-line above the total is blank or zeroed for a reason. You don't need a calculator and you don't need to add anything — although if you want to round the total up to a clean number, that's always welcome. The group-dining page has worked examples and the split math.
And if you're at a sit-down restaurant in a party of five wondering whether the auto-grat will hit at six: yes, almost always, and the restaurant page covers the floor for non-auto-gratted parties too.
Sam Levenson built TipCalc and writes about service, money, and the small ways software changes the way we behave at the register.