All Articles Food Restaurant and Foodservice On tip-pooling, IRS reporting and a few gratuitous facts on gratuities

On tip-pooling, IRS reporting and a few gratuitous facts on gratuities

3 min read

Restaurant and Foodservice

This post is by SmartBlog on Restaurants and Restaurant SmartBrief contributor Janet Forgrieve.

The subject of tipping in restaurants is a hot button that seems to be coming up in the media quite a bit this summer, from the Nevada Labor Commission’s recent ruling that casino owner Steve Wynn’s policy of sharing tips with supervisors is legal to the news that the IRS has hired an outside firm to help it discover why it only receives about a quarter of the 200,000 tip disclosure forms the agency estimates it should get each year.

The Nevada ruling didn’t specifically mention restaurants, but eatery owners breathed easier nonetheless when they realized the commission’s decision wouldn’t force them to change the way they pool and distribute customer gratuities, according to the Las Vegas Sun. It’s not unusual for restaurants to establish tip-pooling policies, but the rules governing such arrangements aren’t always clear. In one case decided early last year, an Oregon court ruled that a tip-sharing policy at the restaurant where server Misty Cumbie worked didn’t violate the Fair Labor Standards Act, so long as servers were making at least minimum wage between salary and their share of tips. Cumbie’s case attacked her employer’s policy of sharing pooled tips with cooks, dishwashers and other kitchen staff, which she contended forced her and her co-workers to share with workers who don’t “customarily and regularly receive them,” the federal standard. The court disagreed, ruling that the policy was legal.

One entity that believes it’s not sharing nearly enough in the tips paid to servers each year is the IRS, which is on the hunt for establishments that aren’t properly reporting tip income.

NPR recently reported on IRS efforts to enforce tip reporting by restaurants and servers, quoting several food servers — by first name only, of course — who said they didn’t always comply with reporting requirements on cash tips. All tipped employees, including food servers, are required by law to report their tips to both their boss and the IRS, and both parties are expected to pay taxes on the income. But cash tips, which still comprise about 40% of all gratuities, are often pocketed without reporting them as income, some servers told NPR.

Now, the agency is upping its efforts to weed out under-reporting of tips, starting with the 8027 form. The form is required by any food and drink establishment with more than 10 employees, but the IRS believes many restaurants ignore the requirement. Now, the agency is compiling information on food and drink establishments and plans to compare notes to uncover companies that aren’t filing.

The National Restaurant Association has long had concerns about the form and the way the IRS holds employers responsible for tips unreported by employees. Often, the association says, restaurant owners are required to pay taxes based on the agency’s estimate of unreported tips, while individual employs are rarely pursued for payment.

Lighter fare

The Huffington Post’s primer on whether and how much to tip in 25 countries around the globe may help save world travelers from committing dining faux pas.

Also, did you know that the custom of tipping began in Europe during the Middle Ages? For that and more fun facts, take this tipping quiz we found on Jacqueline Whitmore’s etiquette blog.

Does your establishment add a gratuity to the bill? Do you have a tip-pooling arrangement in place? Have you dealt with other tip-related issues? Let us know about it.

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