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Jan 7, 2012 11:52 AM

Lots of opinions, but what's the LAW???

Is it the LAW that a restaurant can set its own policy regarding tipping with a gift card or is it mandated that they must allow the card holder to apply excess GC money to the tip. No one is addressing this in legal terms, only lots of opinions.

I have a friend who is a server @ Morton's and says people add the tip to the gift card all the time, but I just got a flat NO from a local restaurant saying I cannot. Can someone please set us all straight as to the legality of this - particularly in California.

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  1. In legal terms, it would seem that, unless there is a regulation on the books covering this, the merchant can control the T&Cs of the card and either permit or forbid allocation to a server. Tips are a transaction between the server and customer, not necessarily involving the merchant unless the merchant agrees to act as an intermediary for that transaction.

    1. No one is telling you because there is no law on it.

      Just like there is no law on how much a restaurant can charge you each time you decide to pick your nose in the restaurant.

      1. I'd like to know if ther's a law covering this as well. I'm having trouble comprehending why a restaurant would have a problem with this. I can see it if the card is a Groupon type of thing (where a purchase is discounted) but a standard "gift card", I would think, is the same as cash. You pay $50 and it's worth $50.... for whatever you choose to put it towards.

        19 Replies
        1. re: Midlife

          It's not the same as cash to you or to the restaurant. The restaurant booked the gift card as revenue once it received the payment, so the restaurant now carries the gift card balance as a liability. I've never had a restaurant give me cash back on any unused portion of a gift card - credit for a future visit, but no cash back.

          If the restaurant prevents patrons from using the gift card balance for tips, then their accounting is nice and clean. Server gets cash tip from the customer, no cash needs to be disbursed from the POS system, and the meal is paid with the gift card amount and are the same amount, so their accounting is kept very simple.

          1. re: janniecooks

            I agree with janniecooks. Another way to look at it is this: asking for the gift card remainder to be used as tip is essentially redeeming the gift card (or part of it) for cash. Gift cards typically can't be redeemed for cash, right? Would you think of walking in with a gift certificate for $100 and just asking them to give you $100 for it? What if you spend $20, should they give you the remaining $80 in cash? I'm guessing you'd agree that would be a bit much. So, where would the line be drawn? Gift cards are to be redeemed for food and drink, and I've never had any problem with that.

            1. re: purple bot

              Except in states (like California) that have laws stating gift cards with a remaining balance of under $10, I think it is, can be requested back in cash.

              This seems to be about the extent of the CA law pertaining to gift cards:

              Not a lot there. They basically tell you to know the merchant's terms before you buy it.

              1. re: purple bot

                In this instance you're not asking for cash so you can walk out the door. Isnt tipping a part of the cost of going to a restaurant? If they've already received the cash for the certificate I see no problem using part of it to tip. The point of the cert is to make sure when you do go out you go to their restaurant, hopefully you have a good experience and come back.

                If it's not a purchased gift certificate, such as a promotion or a two'fer of some kind, then no. Get out your wallet.


                1. re: JuniorBalloon

                  Playing devil's advocate here...Yes tipping is (should be!) part of the experience, but not one in which the restaurant management is involved. It doesn't matter what you're going to do with the cash. Should it be okay if you're going to give the cash to charity, too?

                  1. re: purple bot

                    Only if the charity is the restaurant. A friend of yours has given the restuarant $50. You have a gift certificate. You should get to spend it anyway you want in that restaurant. Part of selling gift certificates is customer acquisition. You shouldn't quibble over small amounts, an amount you've already been given. Make the customer happy. That's all I'm saying.


                    1. re: JuniorBalloon

                      To clarify, let's say you have a GC worth $50 and you buy a $20 meal and want to tip your server $5. I'd subtract $25 from your GC, give my server $5 and say thank you very much come again soon.


                      1. re: JuniorBalloon

                        Agreed! I've been in this discussion, but bottom line....... I don't see whyt it's more complicated than that.

              2. re: janniecooks

                that sounds on the right track to me.

                1. re: janniecooks

                  I've certainly seen that restriction, but does that mean there's no way to be able to cover the complete cost of the dinner as a gift because the restaurant wants to simplify their accounting? That just doesn't sound right.

                  1. re: Midlife

                    Yes, I think that's the issue from a gift-giver's point of view. Given that 20% of an expensive meal can be quite a bit of money, how does one give someone a "full dinner out" with this policy in place. Perhaps it's just not possible (without adding some bills to the gift, which seems rather tacky!)

                    1. re: DGresh

                      instead of giving a restaurant's own gift card, give an AMEX or VISA Cift card in the anount you choose with a note that the recipient should use it for a full meal at XXXX.

                      This doesn't affect the restaurant's bookkeeping as the card company is carrying the liability on its books until the card is redeemed, the restaurant is accepting the card as payment same as it would an AMEX or VISA credit card including the tip. What's more, if the recipient doesn't use it all they can use the balance as he/she pleases. AND, while many restaurants go out of business and people are stuck with unusable gift cards, chances are the AMEX or VISA gift card will be used before AMEX or VISA goes bust.

                      1. re: bagelman01

                        Sounds like a reasonable plan, except that visa/mc/amex gift cards often won't work at places like restaurants, gas stations, hotels, etc. where the final amount may be different than the amount originally run (due to gratuity, filling your tank v not, or ordering room service) Most often, those cards will not "approve" if swiped in those kind of situations. Not saying it's right, it's just how it is. It has happened to me many times. The card simply will not approve.

                  2. re: janniecooks

                    Just curious, aren't credit card tips entered as revenue for the sake of bookkeeping, revenue which is then paid out to servers? Maybe not. Just curious whether it's really so impossible to account for revenue that later is paid out as a tip.

                    I am of the camp that finds it less than ideal to have to pay more in tips on a gifted meal than I usually pay for my entire dinner (although I am still super grateful for the gift).

                    1. re: MiriamWoodstock

                      Tips are not entered as revenue. They don't enter into the restaurant's bookkeeping at all, from what I understand.

                      1. re: purple bot

                        Tips have to, in some way enter into the bookkeeping because by law the restaurant has to report to the IRS what each server has earned in tips, and withhold taxes. I think the minimum you can earn in tips per year without them having to track it is something like $50. So yes, the restaurant tracks tips on their books and since they already have their money from someone paying for the giftcard, it is just a simple bookkeeping line item to give the server the money as a tip. They do this with credit card purchases as well, as the money only exists electronically ever for the restaurant without actual bills exchanging hands.

                        1. re: velochic

                          Okay, I pretty much give up on this, but here goes. I asked my accountant (who has many restaurants as clients) about this. Most places now pay credit card tips to servers through their paychecks, so that's how they are reported. Even if they pay them in cash, they could always just keep an excel spreadsheet, aside from their books. Tips do not figure one way or another into the profit and loss of a restaurant, no matter what form they take. If they do enter them into their books, it's as a pass-through (having no effect one way or another - money in, money out). A gift card is not worth $100 (or whatever), it is worth $100 worth of product. Not cash. If you have a gift card to Home Depot, and you don't spend all of it, do you expect them to give you cash back? You know they won't. So why would you expect a restaurant to?

                          Let me ask you this... if it's really no big deal, as everyone here seems to think, they why do restaurants have a problem with it? Because they're mean? Greedy? Really, folks? That's all from me, you all can believe whatever you like.... =)

                          1. re: purple bot

                            I think you're wrong, if you take that position to the limit you'd have to ask why a restaurant would allow you to put the tip on a credit card, but of course they all do. A gift card is just a prepaid, in accountant-speak (at least here in Canada). So anything goes, depending on the establishment's policy and yes they could give you the change in cash but they won't because the gift card was likely bought with a credit card and they'd be out the 2 to 3.5%.

                            I guess in the end it depends on the taxation laws of the place you're buying the gift card - if it has to be recorded as revenue, then I can understand why tips can't be put on it. I always thought gift cards were not recorded as revenue until they were redeemed. As previously mentioned, best to ask when you buy the giftcard.

                            1. re: purple bot

                              "why do restaurants have a problem with it?"

                              Maybe most restaurants don't have a problem with it. My guess is that it's the exception, not the rule.

                  3. It's issues like this that make me wonder why there is a taboo in North American with respect to gifts of money. Orientals have no problem slipping cash or a cheque into a birthday, Christmas or congratulations card. So much easier.

                    To answer the original question, I don't know about California but here in Canada gift cards are not recorded as sales until they are used. So it is a prepayment using whatever form of payment the establishment used to get payment for the gift card, and if that form of payment allowed tips to be put on it, there would be no reason tips cannot be left on a gift card. So unless it was a promotional gift card (i.e. provided for a discount or barter) it should be allowed to be used for tips. I can't imagine accounting practices would be different in California, so restaurants that have this policy are doing it for their own reasons. The best bet would be to ask when you are purchasing the gift card.

                    4 Replies
                    1. re: hsk

                      An excellent point was made in that when you give a restaurant gift card - no matter what the amount, but especially $100 and up - you don't want to obligate the recipient to stick their hand in their pocket at all. If a restaurant does allow the tip to be included I'd be sure to get that stipulation IN WRITING before giving it to someone. Other than that, the AMEX/MasterCard/Visa gift cards are the only way to avoid this problem.

                      1. re: LAfoody

                        You guys arent thinking clearly.

                        When you buy a gift card you are purchasing XYZ amount of dollars of good sold by the RESTAURANT. A tip is payment for a good sold by the SERVER.

                        Also, I can definitely see why a restaurant wouldnt want to pay for a servers tips with a gift card. In effect every dollar of tip that the customer pays with the gift card would be a XYZ percent reduction on the margin of the gift card sale.

                        For instance, the restaurant sells a 50 dollar gift certificate and the gift card holder buys 50 dollars worth of food and drink. All of that food and drink is PRICED WITH A MARGIN. So the restaurant may be getting 50 dollars for the food and drink they sold but it will only cost them 44 dollars in terms of land, labor and capital to produce that item. Hence the restaurant makes a 6 dollar profit on the 50 dollar gift card sale. However, lets say the gift card holder purchases 42 menu dollars worth of food and then tips the remaining 8. Well there will be a percentage margin on the 42 menu dollars purchased. However, on the 8 dollar tip that the restaurant is paying, THERE IS ZERO MARGIN!

                        Unsurprisingly, restaurants dont want to pay the servers tips on gift cards. Restaurants are in business to earn a profit on everything they do in order to stay in business. It would be a terrible business practice for restaurants to pay the servers tip on a gift card purchase. A remedy to this situation would be for the gift card buyer to PRE PAY the tip up front. That is the only solution that I can see.

                        1. re: trichards

                          trichards - you have WAY over-thought this, and I disagree with you completely. The server is not an independent contractor. A server isn't "selling" anything.

                          If you are given a $100 GIFT card, that means $100 cash was given to the restaurant upfront. For a restaurant to expect a gift carded patron to stick their hand in their own pocket to pay $15-$20 (or more if they go over) is simply wrong. Being in their restaurant is no longer a gift.

                          BTW - I am the person who started this thread and when I contacted the owner who gave me the "flat NO" regarding tipping on the card using this logic, he quickly apologized. He said I could use any excess towards the tip, and that he thought I was originally talking about a Groupon type deal. In that case, I totally understand.

                          1. re: trichards

                            Some fuzzy math going on here....

                            What is being forgotten is the interest free loan that the restaurant received. There may not be any margin to the restaurant when gift cards are used to cover tips/taxes/service charges etc., however it doesnt cost them anything either. They already had the money in hand! They make enough margin on the rest of the bill to go along with all those gift cards that never end up getting used to make this a business practice that just makes sense.

                      2. I just want to add that the amount of money spent on unused gift cards is staggering. Business usually make out like bandits selling these things. It is all the more distasteful if they don't let you use it for the tip.