The Tipping Tip

So this one is a quick tip and a social service message for all my friends in India (and in other countries where the labour laws are not that strongly implemented in the unorganized private services sector).

I belong to a generation of restaurant goers who use credit cards to pay bills when they cross a certain mental threshold of the bill. And then we generously tip the servers/waiters for the service that they provide (irrespective of whether it was good or bad). Such tips are typically paid by rounding of the amount on the bill.

The message of this blog post is – it is bad to tip the waiter through your credit card. You should ideally just pay cash. Here is why -

Time value of money – Cash in hand for the waiter is better than cash written in the tip amount of your credit card payment. Not only is it a big administrative hassle for the waiter to track and get it back from the restaurant owner, but also the value of the money goes down as the waiter receives it only at the end of the month or quarter or when the owner things she should give it to the waiters.

Unfair distribution – Depending on what rule the restaurant has – the tip amount might equally get distributed across all waiters (or split based on seniority, number of hours worked etc.). But when I tip, I tip for the service that was provided by my server, not by the servers at other tables! Besides, if the restaurant has a policy of quarterly distribution of tips, and your waiter leaves the restaurant midway, she might not even get the tip that you gave her!

Credit Card Transaction Fees – Every credit card gateway charges a transaction fee. This fee is typically in the range of 1.5% to 2.5% of your total amount. So if you tipped the waiter 100 rupees, the poor person will only receive – 97.5 to 98.5 rupees. The rest of your tip goes to Visa, MasterCard or Amex.

Owners might get creative – I know of owners who charge administrative fees on tips, or just outright pocket the tip amount without giving it to the waiters. In poorly regulated labour markets (like in India) there are no strong labour laws for waiters.

So next time when you are tempted to round off your credit card bill and pay the waiter a tip, just put a “0.00” there. Then reach for your wallet and keep a few notes for the waiter to get instant gratification and continue to provide service with a smile and satisfaction!