Date:

To:
From:
Subject:

October 5, 2016
TJ Wickham
General Manager
California Pizza Kitchen, Anaheim
Alex Cortez
Server
California Pizza Kitchen, Anaheim
Recommendation Report for Auto-Gratuity System and Tip Reminders

Purpose
The purpose of this memo is to present my findings and opinion on implementing a large
party auto-gratuity and subtle tipping reminders.

Summary
The content in this memo includes a brief review of the problems servers deal with in
regards to tipping. That is their loss of income due to non-tippers. As the research proposal
stated, servers lose confidence and motivation to work hard when they do not make good tips.
This leads to lower performances and thus lower ratings for the restaurant.
It also touches on the research methods used for the four tasks related to implementing
the large party auto-gratuity system and the three tasks involved for implementing the placement
of the table-top tip reminders around the restaurant. After the research methods are explained, the
results are stated. It was found that servers, in fact, get affected by non-tippers which can reduce
their overall performances. With a large party auto-gratuity, these sentiments can be minimized.
Also, servers tend to perform better when they are happy and servers who are making tips are
always happy. That is why the friendly reminders would help boost server confidence and benefit
the operational integrity of the restaurant.

Introduction
The problem, as presented in the proposal, is that servers lose a considerable amount of
money when they are not tipped by large parties. This in turn creates a confidence issue for
servers when they do not make good enough tips. Because tipping is not required for guests,
servers often lose tips that should have been made due to guests who do not care to tip to save
money or due to foreigners that are not familiar with tipping customs in the United States. It is
understandable that tips are not guaranteed on smaller parties but, to a server small parties are
not the main concern. It is when servers do not receive tips on large parties that they really lose
on their monthly income.

In order for California Pizza Kitchen to maintain or even increase business, servers must
perform at their best when serving guests. Confidence and a good attitude are two of the main
factors for quality performance. These two factors can be compromised when there are negative
sentiments towards certain guests. For example, a server frequently gets large parties from a
foreign country, and every time they receive little or no tip, a server can become apathetic
towards serving large parties of foreigners. This leads to the lowered confidence and lack of
good attitudes from servers, which directly affects the perception of the businesses due to lower
quality of service. To help lower these types of sentiments among servers, I have proposed to
research ways to implement a large party auto-gratuity system and how to subtly leave friendly
reminders of tipping customs in the United States by using slogans.

Research Methods: Large Party Auto-Gratuity

To reduce the sentiments that lower performances, but most of all to help get servers the
income they deserve, I had proposed a total of four tasks to implement a large party auto-gratuity
system:
1. Review California State laws to ensure that auto-gratuity is a legal practice in restaurants
2. Research the implications of a large party auto-gratuity system
3. Create an informative brochure to inform other servers and obtain opinions
4. Create proposal to California Pizza Kitchen Corporate

In the next part of the memo, I will discuss the tasks, how they were done, and the rationale
behind the tasks.

Task #1: Review California State Laws

To find out about any laws pertaining to auto-gratuity, I researched the Internal Revenue
Service for laws and regulations. There was a lot of information in regards to tipping and autogratuities. Most of the information had to do with the characterization of auto-gratuity payments
which is all more useful for the implications of the large party auto-gratuity system. I switched to
looking up the laws on the California State Board of Equalization and found more information
regarding the taxation of the auto-gratuity. Looking for more information on the laws regarding
auto-gratuity, no other government official sources were found but there were some blogs on the
topic.

Task #2: Research Implications of Large Party Auto-Gratuity System

To find out the implications of the auto-gratuity system, I researched for opinionated
articles and blogs on the topic. Looking through, there were a lot of different opinions found.
There were perspectives offered in regards to the positives and negatives for servers and
managers. It helped gain a bit of a consensus of the overall feelings towards large party autogratuity and a summary of the new regulations implemented by the Internal Revenue Service.

Task #3: Create an Informative Brochure

Research on creating an informative brochure was done by perusing the different styles of
brochures available on Microsoft Word. I also looked through the web for articles that showed
how to make an effective informative brochure. A Thoughts or Opinions section will be put
in the end to generate servers insight on the information in the brochure and some of their own
information.

Task #4: Create Proposal to CPK Corporate

This task was specifically left for you as the general manager. Based off of the
information and opinions gathered, the decision will need to be made on whether we should
support the large party auto-gratuity system. The brochure that will be created will have
sufficient information to give any server or manager enough pertinent information to help aid the
decision to write a proposal to CPK corporate to request incorporating the large party autogratuity system. From there it will be up to corporate to accept or deny the request.

Research Methods: Tipping Custom Reminders

It is impossible to guarantee tips to servers but it is possible to help servers receive the
tips they deserve for their service. Whether the guest is a foreigner or someone who does not
frequent full-service restaurants, subtly placing tipping reminders around would increase the
servers chances of making a better income. In theory, this would make the servers happier

leading to better performance, which generates a better image for the restaurant. The following
are the tasks that have been composed to place friendly tipping reminders around the restaurant:

1. Research Diversity
2. Develop an appropriate display method for reminders
3. Create proposal to CPK corporate for funds

The following section of the memo will discuss the research methods conducted in each step
to subtly place friendly reminders of tipping customs around the restaurant.

Task #1: Research Diversity

Being located at walking distance from Disney Land, it is appropriate to spark
conversation with guests about where they are from. The best way to find out the diversity of
guests that come into the restaurant is by keeping a tally on the side of total guests served and
where they are from. By knowing this information, it will help determine which three languages
should be put on display for the friendly reminders of tipping customs.

Task #2: Develop Appropriate Reminder Display

The research done for this task was some simple online shopping. Various websites were
visited to get good ideas of displays. There were table top displays that would be very effective
for the purpose. Pricing did not vary greatly from site to site but it was sufficient to gain a sense
of the cost.

Task #3: Create Proposal to CPK Corporate

Like the proposal for the implementation of the large party auto-gratuity, this will need
funding so permission to purchase these items will be needed from corporate. The cost will be
that of the item multiplied by 43 (table count in restaurant).

Results: Large Party Auto-Gratuity

This section will present the findings in the research that was conducted for each task of
the large party auto-gratuity system. Only pertinent information will be stated in the findings for
each task.

Task #1: Review California State laws

It was found that there were no laws or regulations that would keep California Pizza
Kitchen from implementing the large party auto-gratuity system. However, there are a few
regulations that did change a few years ago that would make it more bearing on managers to
have the auto-gratuity system. Rev. Ruling 2012-18 states that auto-gratuity will be considered a
service charge subject to wages for FICA tax purposes because it is required by the restaurant to
the guest (Conway-Hataloski, Linda L).

Task #2: Research Implications of Auto-Gratuity System

In researching the opinions of the implications of the auto-gratuity system, I discovered
many negative thoughts towards the system. One perspective is that it is likely that restaurants do
not use or will stop using the large party auto-gratuity to avoid additional compliance costs and
to allow employees to take their tips home on the day they get them (Henchman, Joseph). From
my own opinion, I would not care if I would be able to take my tips home at the end of the night
if I knew I was going to have a better income at the end of the month. I also believe that the
compliance costs would be countered by the increase in quality performance due to the positive
attitudes servers will have towards large parties if there is an auto-gratuity system in place.
The following is a transcript of an interview with a server at a neighboring Bubba
Gumps restaurant. Their identity will be left out for their own protection.

Q. Is there a large party auto-gratuity system in your restaurant? If so, what is the percentage?
A. Yes, only for banquets of parties 25 and over. The percentage is 17%.
Q. Do you often feel discouraged when you do not receive tips from large parties?
A. Yes, when I dont receive tips from large parties I feel like my efforts are unrecognized. So the
next large party I have I feel discouraged to try as hard.

Q. Would you be encouraged to try harder if there was a large party auto-gratuity for parties of 8
or more?
A. Yes, because it guarantees me my money. I like being a part of our banquet parties because of
the 17% auto-gratuity plus they usually leave extra cash on the table.

Task #3: Create and Informative Brochure

The results for these tasks were that the best way to create a brochure is to make it easy to
read by using titles and bullet points. From looking around on Microsoft Word, I found many
sample brochures that I will be using to make the brochure with the information found
throughout the research. An Opinions section will be added to the end to get the other servers
thoughts on implement the auto-gratuity system.

Task #4: Create Proposal to CPK Corporate

When the brochure was handed out, most of the servers were able to take a look at it and
give their opinion. The opinion ruled that 45% did not want to implement the system and 55%
that did. That is 10 voted no and 11 voted yes. Now it is up to you as the general manager to
provide your final opinion as to write the proposal or not.

Results: Tipping Custom Reminders

Task #1: Research Diversity

I discovered that the most popular languages from conducting the field research were
English, Spanish, and Chinese. These three languages will be included in the friendly reminders.

Task #2: Develop Appropriate Reminder Display

There were many fairly priced options for the display of our reminder. The one that stood
out the most was a tri-fold table tent. This table tent would allow for 6 sides of display for a fair
price of $5.17 before taxes (Acrylic Sign Holder for Tabletops, 6-Sided Clear). To provide

them for the entire restaurant, it would be a total of $222.31 before taxes ($5.17 per table tent x
43 tables).

Task #3: Create Proposal to CPK Corporate

Like the proposal for the large party auto-gratuity, there are limitations to the research of
this task. It is designated for you, the general manager, to decide if you like the idea. If you think
it is worth the investment a proposal can be created for corporate to request funds to provide the
table tents.

Conclusions
The results of the task all seemed to play out to the advantage of implementing the autogratuity system and the friendly reminders. When it comes to the auto-gratuity system, there are
no laws or restrictions on the implementation of a large party auto-gratuity system. The only
findings were that there is some additional work that needs to be done by management to keep
track of the wages and tips under regulations of Rev. Ruling 2012-18. Because auto-gratuity is
not up to the guests, it is considered a service charge which is treated as wages for FICA tax
purposes.
There were many arguments that opposed the large party auto-gratuity system and many
that were positive. Given that this is something based on opinion, there is not too much
consideration that should be taken. It seems like a matter of preference. There are many ways to
manage restaurants and having large party auto-gratuity may not benefit some as much as others.
Because our restaurant has a heavy flow of foreigners and other tourists, it may work more to the
benefit of the restaurant. Especially considering the interview conducted with the Bubba Gumps
employee that works two doors down from our restaurant. The servers overall opinion was that
it is easier to find motivation and work harder when money is guaranteed.
In regards to the results of the addition of reminders around the restaurant on tipping
customs, the process is simple and should not cost the restaurant too much. By finding out the
diversity of our restaurant and getting the top three spoken languages, it will be easy to display
and get our message across to please tip servers. The option that I provided only costs $5.17 per
table tent. There are 43 tables for a cost of $222.31 before taxes. This is a one-time payment that
will last a very long time because they are made of a flexible plastic so the likelihood of them
breaking is not high. It will help servers with the tipping reminders and also help to display
specials and any other advertisements that would benefit the restaurant.

Recommendation

Based on the results, I would highly recommend that we implement the auto-gratuity
system and the friendly tipping reminders. I think it would greatly improve the overall attitude
and performances of the servers. With so many opinions, it would be a matter of trying the
system in our restaurant. I am confident that it will work out to counterbalance the cost of the
implementation of the new system considering our location. I believe that the overall
performance increase of servers will generate more loyal guests to our restaurant. Loyalty is an
expensive asset that is worth gaining with guests because it helps ensure the success of the
restaurant. The tri-fold table tents will provide excellent advertisements and help servers generate
more tips. This would of course make any server happy. A happy employee is more likely to
perform better, which will help the restaurant prosper. The sole decision lies with you as the
general manager. All it would take for these things to be implemented is permission from
corporate.

Works Cited/References:

Acrylic Sign Holder for Tabletops, 6-Sided Clear. Displays 2 Go. Web. 30 Sept. 2016.
www.displays2go.com/P-481/Acrylic-Table-Tent-has-6-Panels-for-5-x-7-Graphics?
st=Category&sid=1769.
Conway-Hataloski, Linda L. "Internal Revenue Bulletin - June 25, 2012 - Rev. Rul. 201218."Internal Revenue Bulletin. Internal Revenue Service, 25 June 2012. Web. 08 Oct. 2016.
www.irs.gov/irb/2012-26_IRB/ar07.html.

Henchman, Joseph. "IRS Crackdown on Automatic Gratuities Takes Effect January 1." Tax
Foundation. Tax Foundation, 30 Dec. 2013. Web. 30 Sept. 2016. taxfoundation.org/blog/irscrackdown-automatic-gratuities-takes-effect-january-1

"Publication 115, Tips, Gratuities, and Service Charges." California State Board of Equalization.
State of California, 01 May 2015. Web. 08 Oct. 2016. www.boe.ca.gov/formspubs/pub115/.