AccusServe Payroll - Employees Tips
Tipping has long been a tradition in the restaurant industry, but it also causes headaches when it comes to pay and employee tips. Let's review some of the difficulties allowing tips involved - and what you can do about them.
Tip Reporting
Yes, employees need to be honest on much money they earn on tips every day. The tricky part for employers, of course is that employees may be tempted to lie. This is usually to improve their personal finances. If you earn $10 an hour and $5 more than you actually received, you can take home much more than you expected.
IRS.gov can help. Publication 1244 contains two forms that allow you to record the tips received daily. Ask your employees to use it and check them from time to time to make sure they report them accurately.
Tip Credits
Employees receiving tips must always received at least a federal minimum wage. As an employer, you can get a tip credit on their salary. This happens if you pay at least $2.13 per hour (in most states), provided you get enough tips to make up for the difference. If they don't get enough tips to cover the difference, you'll have to pay for these costs and pay them the difference. That is why accurate tip reporting is essential. Now wages for overtime should be calculated based on the full minimum wage, and not based on compensation after applying the tax credit.
Tip Tax and Employee Tips
As an owner, you must pay taxes on cash tips received by employees. Non-cash tips (such as event tickets) are not taxable or have monthly tips of less than $ 20. To be honest, this probably only applies to young people with only a minimum part-time job. So don't expect employees to tip so little that you won't have to pay taxes on them.
Note: keep in mind that many automatic tips - especially 18% or more - count as restaurant income rather than employee income and are subject to sales tax.
Tipping Allocation
Many restaurants use a system in which employees pass their tips to the total pool, which is then shared by all members. That's good - knowing how much each employee should get out of the pool, it's easy to catch people lying. Employees must report their income only after allocation, not before. In this system, they did not "earn" a tip until it was assigned.
Some restaurants offer staff meals.
Some restaurants offer staff meals. The value of these meals can be deducted from their salary and thus exempt from tax if:
- Meals are provided within your companies premises.
- Meals are served for your convenience.
As explained by the IRS, any meals that take place immediately before, during or shortly after the employee's working hours. These are considered to be consumed for your convenience. In practice, this means that it's generally better to feed employees than to pay them. The promise of a good meal each day can be an excellent incentive for employees.
Disclaimer: Although the information provided here is true and to the best of our knowledge and belief, regulations may vary by jurisdiction or may change since the last time this content was updated. If you have other questions about the effects of advice, contact a qualified lawyer.
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