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Gift Certificates and Tipping

danna Feb 27, 2007 11:55 AM

What do you do?

You have just eaten a meal at a restaurant you wouldn't be in, except that you got a gift certificate. (a gc that was paid for, not a comp) Your gc is $60, your bill was $51. You put the gc in the envelope. The waitress brings it back with a brand new gc for $9. You will not be eating in that restaurant again. What do you do about the tip?

If you leave the gc, will the restaurant give her cash at the end of the evening? If not, can she substitute it for cash the next time another patron pays in cash? Or have you effectively stiffed her?

  1. a
    AnnaEA Mar 3, 2007 03:26 PM

    I know that one of the restaurants I worked at sold "gift certificates" to local businesses for employee bonuses at the holidays. The certificates were sold for five dollars per ten dollars of face value, and couldn't be used for drinks or bar bills (even if it was food eaten at the bar). The restaurant made money off of them thru 1) people who bought more then their certificates covered and 2) people who never redeemed their certificates.

    I personally try to always tip cash, regardless of how I am paying for my meal.

    1 Reply
    1. re: AnnaEA
      j
      justagthing Mar 3, 2007 05:03 PM

      Agreed in regards to tip. But that is another topic that can be covered on another thread.
      redchile, I understand that you do not believe that the 'accounting' aspect of the gift certificate makes sense, but nonetheless, it appears that to be on the 'proper' side of tipping, you should tip aside from the certificate. The wait person has nothing to do with how the business aspect of the restaurant is run and if per chance they would not get anything from leaving the balance as tip, I would assume that you would prefer to have tipped properly than have to haggle with the waitperson on something they have no control over.

    2. r
      redchile Mar 3, 2007 03:11 PM

      No offense Le Den, but that doesn't make any sense to me. If a gift certificate for $60 is purchased for $60, and yet cannot be used for tax and gratuity, why would anyone buy any? I have used many gift certificates over the years that I paid 100% of the value for, and have always used them for tax and gratiuity.

      If you worked as a restaurant accountant and can state unequivocably that gift certificates are not as good as cash, then I'd like to hear about the specifics.

      From a standard GAAP procedure, I would guess that the restaurant could book the cash, but not the revenue, and the cash would have to be offset with a liability, probably as a prepaid. The revenue would be booked as the certificates are used, matching cost and revenue.

      For the non-accountants who's eyes are glassing over about now, I apologize. I'm trying to understand the "logic" of a gift certificate not being as good as cash.

      Following that logic, If I walk into a restaurant, and the first thing I do is to buy a $60 gift certificate for $60, and one hour later after dining, a check for $50 is presented to me, I could only use $50 toward the cost of the meal, and would have to pay the waitperson cash for the tip.

      Why would I ever buy a gift certificate?

      If the above scenario is true, gift certificates should all be sold at a discount because of their inflexibility compared to cash.

      Are there any restaurant accountants out there?

      1. r
        redchile Mar 3, 2007 12:02 PM

        I continue to be baffled by this situation, and particularly to some of the responses. If the gift certificate/card is not a bonus gift at the discretion of the restaurant, it's the same as cash. It doesn't matter whether I purchased the certificate, or if it was a gift from someone else.

        If someone, whomever, paid 100% for the certificate, it is the equivalent of three $20 bills. How can it not be? Does a gift certificate for $60 that cost the purchaser $60 become less valuable than cash? I don't follow the logic.

        When the check comes, and the total is $51, and I have a $60 certificate, I treat it the same as if the certificate was three $20 bills.

        With a $51 bill and a 20% +tip, the total paid would be maybe $62. I would leave the gift certificate plus $2.

        Gift certificates are a good deal for restaurants. Some are never used, or are lost. Even if they're used, they have a declining value due to inflation. If I buy or give a $60 restaurant gift certificate for a 2006 Christmas gift in December, and it isn't used until six months later, all other things being equal, it's only worth about $59 the following June because of the typical 3% annualized inflation rate. In actuality, it could be worth even less if the restaurant raised their prices significantly in the six month interim.

        As an aside, I realize this is a little off-topic, and I never worked for a restaurant,, but as a former accountant, I'm pretty sure the restaurant cannot book the amount paid for the certificate as revenue until it is used. It is a cardinal rule of accounting to match revenues and costs in the same accounting period. Restaurants sell a lot of gift certificates in November and December. It would distort their earnings if they booked the revenue then, and incurred the costs all year long.

        2 Replies
        1. re: redchile
          l
          Le Den Mar 3, 2007 01:11 PM

          But it is revenue on the day it is sold. That money is not set aside and only added to the restaurant's coffers on the day it is used, it IS only counted as a sale the day it is used for inventory/tax purposes, but it is added to earnings on the day it is purchased. Therefore, it can't be used for tax and grat, but only for goods purchased as that is how it was sold. Another way of looking at it is that the gift cert is a loan on goods to be purchased at a future date.

          If you want to think of it as 3 $20 bills, you also have to think of it as 3 $20 that have no value for tax and grat.

          Gift cards which are linked to credit card companies, deduct the amount from the purchased total and can be used anyway you wish, but gift certs, purchased from a specific restaurant or store, cannot be used for tax and grat. and neither can gift certs from credit card companies (I'm thinking the Amex gift certs where you redeem points).

          By leaving the remainder of the cert, the waitress was stiffed. The restaurant will also have to pay tax on the total of the cert as that is the amount of money they took in but the cert will be cashed out for the total of the check as that was the total of the goods purchased.

          1. re: Le Den
            jfood Mar 3, 2007 07:03 PM

            I am not sure which accounting standards you are using Le Den but if you are an accrual business you are Le Wrong. The accounting entries when sold are debit cash; credit deferred revenue. When you deliver on your deferred liability (the meal) you debit deferred revenue; credit revenue. There are a couple of other entries that go along with the entries. but it is NOT revenue when you sell it, it is cash. When it is redeemed it is revenue, but not cash. Basic accrual accounting.

            If the resto has any ethics and good sense and the situation described above occured they should GLADLY give the change to the server as her tip if so directed by the custo. Any other conclusion makes the resto owner look like a goniff.

        2. j
          justagthing Mar 2, 2007 04:20 PM

          OK...a couple of things come to mind here. If the restaurant is a larger chain or bigger type restaurant, then they may not have this problem, but if it is a smaller, not chain type and all, then their accounting may be different and so the reason for the $9 gift cert/card. No matter, you did not mention what place it was.

          But more than anything, if you do not like the restaurant prior to going, why did you even go? You could have done something else other than 'have' to use the certificate yourself. Choices includes; regifting, donating to charity or going online and exchanging it for a gift cert/card that you would be interested in. Then you would never have had to deal with the mess or the poor food.

          1. momof3 Mar 2, 2007 04:03 PM

            guess the places I've worked have been screwing NY state, should I say something? Maybe they don't know.

            1. s
              smartie Mar 2, 2007 02:53 PM

              when a gift certificate is sold, the restaurant does not pay tax but once redeemed tax is now paid to the state. Therefore there is a problem with giving the leftover portion to the server.

              1. m
                mojoeater Mar 2, 2007 02:48 PM

                I think an interesting fact is that something like 30% of gift certificates in the US are never redeemed. I think it's a lower rate for those department store gift CARDS.

                1. momof3 Mar 2, 2007 01:47 PM

                  Danna, this was a frustrating chain of posts to read.
                  Simply, you should tip whatever percent you feel is right.
                  I don't know of any restaurant that wouldn't give the remainder of the Gift Cert/Card to the server if indicated on the merchants copy of the check. This has become a very regular practice. The server isn't losing anything. Don't worry about that.
                  As you said, of course if there is any doubt, ask the manager on duty.
                  I've gotten way less than $9 on $52. we all hope for 20% but $9 is totally within normal range.

                  1 Reply
                  1. re: momof3
                    l
                    Le Den Mar 2, 2007 02:36 PM

                    In NYC you will be hard pressed to find a restaurant that will allow the remainder of the gift cert to be used for grat. The tax boys frown heavily on the practice which is why most certs state that the cert cannot be used for tax and grat but goods only.

                  2. m
                    mattrapp Mar 1, 2007 05:42 AM

                    Restaurants do not pay the servers tips, we do as patrons. The gift certificate is the restaurants revenue, not the servers. If you were to use the gift certificate funds to pay the server you would in fact be making the restaurant pay for your servers tip. This is money out of the restaurants pocket, above and beyond the cost of goods sold.

                    1 Reply
                    1. re: mattrapp
                      danna Mar 2, 2007 11:56 AM

                      I really appreciate the replies I have received here, and have definitely decided that asking in advance is the answer should this question ever arise again, however, I think a lot of people have a fundamental misunderstanding of the economics of a gift certificate. It is most certainly NOT the "restaurant's revenue". It is the restaurant's LIABILITY. The restaurant has already received cash. They now have an obligation to provide equivilent value in return.

                    2. s
                      swsidejim Mar 1, 2007 05:37 AM

                      Tip in cash, tipping with the balance left on a gift certificate is tacky. Especially if the gift certificate was a gift.

                      Also the $9 balance wouldnt cover the tip for a $51 meal with how I tip.

                      4 Replies
                      1. re: swsidejim
                        danna Mar 2, 2007 11:57 AM

                        Could you clarify the thought behind "especially if the gift cert was a gift"?

                        1. re: danna
                          s
                          swsidejim Mar 2, 2007 12:12 PM

                          Sure,

                          Since probably 99.9% of all gift cards are gifts of some sort, and not purchased by the individual using them, I look at a gift card as "found money", meaning I didnt have to crack open my wallet, and spend my money to buy it. So if I leave an unused balance of $9 on a gift card I wont be upset about it.

                          So how I see it, a person with a gift card hasn't really paid for the meal out of their wallet, the least they can do is pull out some cash, and tip, not try to use the balance on a gift card to try to tip with.

                          1. re: swsidejim
                            jfood Mar 2, 2007 01:06 PM

                            All very confusing. If the resto gives the custo the $9 in cash and he puts it in his left pocket and takes $9 out of his right pocket has he metthe test of paying for the tip with his own money?

                            1. re: jfood
                              s
                              swsidejim Mar 2, 2007 01:27 PM

                              Not confusing, the restaurant didnt give cash back, they gave back a gift card with $9 on it.

                              Also as I mentioned I have no issue if I received a gift certificate for a place I will never return, to leave a remaining balance of $9 on the gift certificate without hesitation never to be redeemed by me.

                              Like I said it is "found money". The OP mentioned that they would not be eating at the restaurant again, so I believe that was why they wanted to try to tip with the balance on a gift card. I imagine if it was a place they frequented they would have had not problem tipping cash to the server, knowing the $9 balance would be redeemed by them on a future visit.

                              Cash is king, and asking a server to substitute a gift certificate on the their next cash tables tab for the cash for a tip is ridiculous. Servers work hard enough as it is, why make them go through these gyrations for a tip when a person could just leave the cash. ?

                      2. c
                        CrazyOne Mar 1, 2007 05:33 AM

                        I can only think of one experience where I used a restaurant gift card (not paper cert, but card with mag stripe) where I had money left over and a tip was required. The transaction came back just like a credit card, with a credit card slip and tip line. Since these restaruant systems are programmable to handle just about any situation in any way the restaurant would prefer, I felt safe assuming in that case that a tip from the card was acceptable, even if it used the entire remaining balance of the card.

                        In the situation described in the OP, which sounds like a certificate, then replaced by a certificate, it's clear the restaurant is making sure they don't give cash back out for the cert. Honestly, I think that's cheap, and you should be able to use a certificate for tip. But if they give you a new certificate back, as described, it would absolutely NOT be reasonable to leave that for the server as tip. If you have a paper certificate, the best thing to do is use it all, or make sure you work out what will happen with a small remainder beforehand, giving them a number for the small remainder as well (say, a remainder under $10 in your discussion, not just an undefined amount, so you don't have differing definitions of "small").

                        1. n
                          nc213 Mar 1, 2007 05:09 AM

                          ask. some restaurants will let you apply the extra to the tip, some don't. we always ask the server, who often has to check with a manager. if we can't use the gc, then we leave a tip in cash.

                          1. SweetPea Feb 28, 2007 05:44 PM

                            Most of this is way over my head ( my siblings sucked up all the math genes) but in my limited experience, if $60 is taken in, then $60 goes out. Or could the problem be an accounting issue of cash or accrual basis?

                            1. b
                              bethd127 Feb 28, 2007 11:09 AM

                              i understand the Logic of assuming that the server could just "cash in " the balance, or use it on another transaction. Unfortunately, this is probably against restaurant policy, and the server would get in trouble for it (from personal experience).

                              1. m
                                mojoeater Feb 28, 2007 10:46 AM

                                As a former waitress, I can tell you that servers groan internally when a customer says they will be using a gift certificate. The most often result is little or no tip. The unfortunate truth is that most gift certificates do have the 'tip not included' aspect, because the cash has already been applied at the restaurant the day it was purchased. Each day means a new cash drawer, so there is no money for the server to claim as tip on the day it is redeemed.

                                If the remaining amount is less than $10, ask the manager for a cash refund rather than a new certificate. Most restaurants will comply.

                                1. r
                                  redchile Feb 28, 2007 06:46 AM

                                  I don't understand the dilemma. I use gift certificates all the time. If it is truly a gift certificate in which you (or someone else) pays 100% of its value, it most certainly can be used for taxes and gratuities.

                                  It's the same as cash. Now, some restaurants give out bonus certificates of $20-$25 for every $100 spent on gift certificates. These usually have restrictions, such as invalid days, times, not usable for taxes, gratuities, etc. These are bonuses, you did not pay for them. The restaurant is free to make restictions.

                                  If I had a $60 gift certicate that I, or someone else paid $60 for, and my bill totaled $51, when the check came , I would use the remaining $9 for a tip, and maybe add $1-$2 extra.

                                  Completed gift certificate.

                                  1. l
                                    LStaff Feb 28, 2007 06:31 AM

                                    I just used a gift card at a local place, and it worked just like a credit card, when they gave me the slip to sign, it listed the balance left on the card and I was able to leave the balance as the tip.

                                    I can see the ploy to not allow you to use the residual as a tip - what's the chance you will ever use that $9 left over? That's $9 more profit for the restaurant. Kinda lame for customers and staff though if you can't use the residual as a tip.

                                    1. j
                                      justjoy Feb 27, 2007 01:38 PM

                                      I don't get your dilemma: if the service was good, leave a tip! Just because you hate the restaurant and you only went there because it was a free meal doesn't mean your server should suffer. Of course your server can't "cash in" what you haven't spent as his/her tips.

                                      4 Replies
                                      1. re: justjoy
                                        danna Feb 28, 2007 05:35 AM

                                        See, that's my question: My husband thinks the restuarant will cash out the gc at the end of the night. I think they won't, but that all the server needs to do is substitue the $9 gift card for $9 cash on the next transaction. I'd like to hear from someone in the business whether either of us is correct. Thanks.

                                        1. re: danna
                                          h
                                          hilltowner Feb 28, 2007 09:44 AM

                                          It is probably an accounting issue. When the restaurant recieved the $60 for the gift certificate, they have to apply that money to an account. They can't just sit on the money until the gift certificate is used, so they apply it towards food/beverage. So, while they would not technically be "out" the nine dollars, they would have to change the accounting each and every time someone used a gift certificate. This is not at all practical for any restaurant. Also, depending on how a restaurant works, yes, a server probably can recoup the tip by applying the remainder of the gift certificate to another check, but it's a little bit sneaky. I always feel like I am cheating when I have to resort to such behavoir. As a customer, I would never force a server into that position.

                                          1. re: hilltowner
                                            rob133 Feb 28, 2007 09:50 AM

                                            I'm not an acocuntant, but when I worked in retail when we sold a gift card it was not registered as a 'retail sale' (ie no product/service was purchased - simply an intent to provide one in the future). We (ie the store) only 'recieved' the sale when the card was redemmed.

                                            1. re: rob133
                                              syoung Feb 28, 2007 11:02 AM

                                              The accounting entry in your scenario would be to debit cash and credit a deferred revenue account which is a liability; then when the GC is used, it's debit deferred revenue and credit revenue.

                                              However, this issue has nothing to do with accounting, as the cash received for the GC should go into the general bank account regardless of how you account for it.

                                              Rather, it has to do with restaurant policy wrt GCs which is set by the owner. If the owner's policy is that GC cannot be redeemed for cash, then leaving the $9 GC as a tip would mean the waitress is stuck with the GC to use as she chooses, unless the owner is kind enough to make an exception to the policy and cash it for her. Or, as someone already stated, she can be sneaky and secretly redeem it against another patron's dinner.

                                      2. Den Feb 27, 2007 12:40 PM

                                        Spend the whole GC, tip s/b in cash.

                                        1. jfood Feb 27, 2007 12:09 PM

                                          D,

                                          Gotta manage the bill a little better. Never leave a small amount on the GC, it will never be used and will be found money for the resto. When the bill arrived I would have ordered a dessert to go, get over the face value at all costs.

                                          WRT the tip. That is paid in cash or the waitress might get stiffed. And, as you know should be as a percentage of the meal as if the GC was not present.

                                          7 Replies
                                          1. re: jfood
                                            l
                                            Le Den Feb 27, 2007 12:41 PM

                                            Most gift certs state that the cert cannot be used for either tax or tip but only goods purchased. Always go over the amount of the cert. You won't be out much and far less than the cost of the meal had you gone without the cert.

                                            1. re: Le Den
                                              danna Feb 27, 2007 01:05 PM

                                              See, there's my problem with it. Nowhere on the gc did it mention any restrictions, nor did the restaurant's website which I checked before we went (because I'm obsessive) I think it's an awfully poor business practice on the part of the restaurant to give me a $9 gc. I understand you are saying this is a common practice, but I don't understand why. If the giver of the gc paid $60 to the restaurant to buy the cert., then the restaurant is not LOOSING anything to give back change, no matter how much it is.

                                              The wine list was so bad I didn't bother ordering a glass and the food was so bad I didn't want dessert. Normally I don't have too much trouble running up a bill ;-)

                                              1. re: danna
                                                rob133 Feb 27, 2007 01:59 PM

                                                huh? How are they not loosing anything if they give you cash back? They are loosing the $9 aren't they?

                                                I assume restaraunts operate like a retail store in this regard they can't actually include the cash from a gc sale until they are redemed for goods/food/products?

                                                1. re: rob133
                                                  danna Feb 28, 2007 05:32 AM

                                                  They aren't loosing anything. They were originally given $60. In exchange, you receive a meal (estimated to be at a cost of 50% of $50)and $9. If they gave you the entire amount of the gift cert back(instead of a meal), they still would not be loosing anything.

                                                  The only thing they have "lost" is the potential gross margin they would have made if you ordered another $9 item. But that's an opportunity cost, not an economic loss.

                                                  1. re: danna
                                                    rob133 Feb 28, 2007 09:51 AM

                                                    Just becasue the company are making less profit, if they give you $9 in cash they are still giving away money. the originally had $60 and they only end up with $51, the actual 'cost' of the meal is irrelevant in this case.

                                                    1. re: rob133
                                                      danna Feb 28, 2007 10:18 AM

                                                      I am an accountant, and I believe you are correct in your post below about how gift cards are accounted for. A gift card sale should be defered revenue until the time it is redeemed.

                                                      However, you are mistaken in saying they are "giving away money" unless you think that if you buy a shirt at a store, and then return it for cash, the store is "giving away money". They are merely back to even.

                                                      Anyhow, I didn't mean to bore the crap out of people with a discussion of accounting. I just wondered how servers handle this in the real world.

                                                      1. re: danna
                                                        rob133 Feb 28, 2007 10:27 AM

                                                        Okay, I here what your saying with that analogy, guess I'm simply coming at tat paticular part of the issue from a different angle.

                                          2. bklyngrl Feb 27, 2007 12:04 PM

                                            You've stiffed her. Tip her in cash.

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