This simple tipping trick could save you over $400 a year

My brother and I have been tipping the same way ever since we got our first Velcro wallets and bowl cuts, using the method our father taught us some 20 years ago. But after watching enough friends fill out their bills at restaurants, everything I once thought I knew about tipping came crashing down on me.

I realized I may have been tipping wrong my whole life. Maybe you have, too.

Of course, "wrong" is a subjective term when it comes to a cultural norm like tipping that, for the most part, involves individual customers choosing what amount seems "right." But when I realized my peers had been tipping differently, and potentially saving over $400 a year, it became clear I had to rethink my strategy.

Before we get into that, it's important to remember that servers in many instances earn the majority of their income from tips. The federal Fair Labor Standards Act allows restaurants in certain states to pay tipped employees less than minimum wage. In New Jersey, for example, a restaurant can pay a server as little as $2.13 an hour.

Map via the United States Department of Labor

And while there are no set rules for tipping, a gratuity of about 15 to 20 percent is generally expected, according to the etiquette experts at The Emily Post Institute. That range is supported by a survey that pegs the median tip in the U.S. at 18 percent.

"You're really entering into what we loosely call a social contract that you're going to provide this server with a tip that helps to create their salary, basically," says Lizzie Post, host of Emily Post's Awesome Etiquette podcast.

With that understanding, I looked at how people calculate their tips and found two schools of thought. The first is the group my brother and I joined after being indoctrinated by our father. We employ what's referred to as the "decimal trick," whereby we simply move the decimal in the total one place to the left to calculate 10 percent. Doubling that, we arrive at a 20 percent tip.

The second group uses the information provided to them on their bill to double the tax (8.875 percent in a place like New York City) and arrive at a tip close to 18 percent. In a state like Maryland where tax is 6 percent, they triple the tax instead. And in a state like Delaware that has no sales tax, I guess they're stumped.

Both methods result in tips that are within the acceptable range of 15 to 20 percent. But they are different in one respect that isn't referenced much when it comes to discussing the right way to tip: Whether the calculation is based on the cost of the meal before or after the addition of tax.

The tax method is by definition applied to a pre-tax total. But the "decimal trick" uses the post-tax total, in large part because of the way receipts are printed when you pay with a credit card. Even the suggested "20 percent" calculations printed on receipts for your convenience are generally calculated on the post-tax total.

It might seem like a negligible difference, but over time the savings can be far from trivial. Take a bill of $100, for example. Tipping by doubling the tax amount to arrive at an 18 percent tip would save a customer $4 over tipping 20 percent by using the decimal trick on a post-tax bill.

Dining out a second time that week would increase savings to $8. Continuing the trend for the year and just the one simple change would equate to a total savings of over $400.

Something about it might not sit right, especially if you've tipped post-tax your entire life. Yet technically it isn't improper to tip before tax.

"From an etiquette standpoint, tipping on pre-tax is absolutely fine," Post says. "As a former server, I will tell you it's always nice when someone tips on the entire amount, but for the most part folks weren't really comfortable with the idea of having to tip on their taxes."

People accustomed to tipping on the post-tax amount were not overwhelmingly supportive of the idea when interviewed in New York's Times Square.

"Now that I'm thinking about it, it feels a little dirty," one woman who uses the decimal trick on post-tax totals tells CNBC Make It. "It just feels like you're going out of your way to look at the number that's clearly going to give a person less money just because."

But in the discussion of tipping, less money is very much a relative term. And, inevitably, less money tipped is more money saved. Reaching some middle ground that respects both servers and the fact that increasing shares of millennials have nothing at all saved could be ideal.

Changing tipping strategies could save someone who frequently eats out over $400.
CNBC | Richard Washington
Changing tipping strategies could save someone who frequently eats out over $400.

It's also much more realistic than other options on the table.

Experiments by some restaurants to ban tipping, such as those tried by Shake Shake founder Danny Meyer at a few of his restaurants, have had mixed results and been followed by a number staff members quitting.

And while the percentage people tip is only loosely correlated with how much patrons say they enjoyed the experience of their meal, maintaining traditional tipping does raise the overall quality of the service, according to studies from Cornell consumer behavior professor Michael Lynn. The relationship between what they provide and size of the tip servers get "is at least moderately large, so tipping does serve as an incentive to deliver good service for these servers," says Lynn. "In fact, service ratings are higher in restaurants with [optional] service charges than in those with automatic service charges."

Should you consider changing tipping strategies? It comes down to how much you care and how much you are already spending in situations where a tip might be expected.

The average American spent over $3,100 a year on food outside the house in 2016, according to the Bureau of Labor Statistics. For people spending more at restaurants, including one 30-year-old CNBC Make It profiled who was spending $280 a week on dinners alone, the savings from changing tipping strategies would be even higher than $400.

And Post says the decision is up to you. "Truthfully, if you're the one taking care of the whole check, it's no one else's business how you figure out that tip," Post says.

That may be true. But I still had to ask my brother if he'd be ditching the decimal trick.

"I mean I wouldn't judge anyone that did that," he tells me. "I just don't have time to be penny pinching like that."

—Video by Richard Washington and Zack Guzman

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