Q: Is it legal to add an automatic gratuity to open tabs at a bar in Utah and use signage for customer notification?
I'm a bar owner in Park City and we're handling a large number of open tabs each weekend due to pre-authorizing credit cards and returning them to customers. Many don't close their tabs. We've considered adding an automatic gratuity if the tab isn't closed by the end of the night. Would posting signs about this policy be legally sufficient to prevent disputes, and offering the option to change the amount the next day be compliant with Utah Admin. Code R865-19S-94 regarding service charge vs. gratuity tax implications? Additionally, any insights on how other local establishments manage this would be appreciated.
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A:
Yes, in Utah, you can legally add an automatic gratuity to open tabs at your bar, provided you follow specific guidelines. According to Utah Admin. Code R865-19S-94, if a gratuity is mandatory and included on a patron's bill, it is considered a service charge and is subject to sales tax.
To ensure compliance and minimize disputes, it's essential to clearly inform customers about this policy. Posting signs in prominent locations within your bar and including a notice on the menu or drink list can serve this purpose. The notice should state that an automatic gratuity will be added to open tabs not closed by the end of the night. Offering patrons the option to adjust the gratuity amount the following day can further demonstrate good faith and customer service.
Remember, since automatic gratuities are treated as service charges, they are considered part of your business's gross receipts. This means they are subject to sales tax and must be reported accordingly. Additionally, these charges are not classified as tips, so they don't go directly to employees unless you choose to distribute them. It's important to handle these funds appropriately and ensure your staff is compensated in compliance with wage laws.
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