If you have any further questions or concerns regarding this ruling, feel free to submit your questions to our attorneys or to Ryan Costigan at firstname.lastname@example.org. You can also access the National Restaurant Association's member-exclusive Legal Problem Solver for Restaurant Operators, which provides you with an easy-to-understand summary of key federal laws and regulations.
Thank you to our legal partners Elarbee, Thompson, Sapp & Wilson, LLP, Jackson Lewis, P.C. and Sherman & Howard, LLC for participating in this effort.
Starting in January 2014, the Internal Revenue Service (IRS) will begin classifying mandatory gratuities as service charges. Service charges are treated as wages and are subject to payroll tax withholding, whereas tips are left up to employees to report as income. Read more.
- Yes, but each staff’s portion of the fixed amount cannot be counted towards minimum wage. If they get enough in regular tips to get them to $7.25/hr, then it doesn’t matter.
- Under the IRS Regulation, the restaurant can do whatever it wants with the service charges. To the extent the restaurant decides to pay those service charges to the employees, they are wages and must be figured into the regular rate. Those wages are not tips. Accordingly, the restaurant can pay $2.13/per hour, but the employee has to earn enough tips separate and apart from the service charges to make up the “tip credit” of $5.12/hour here in Georgia.
- Yes, but it’s hard to see how they would get enough in variable tips to make up the difference. You could, but it probably isn’t a good idea.
- They may, but they may not apply the fixed gratuities toward the tip credit. This means the employee’s non-fixed gratuities must be enough to get them over the statutory minimum wage, which is currently $7.25 per hour in Georgia.
- General consensus is no, not at this time.
- You can add a “labor charge,” but again, to the extent those charges are passed onto the employee, they count as wages. And you can always allow the customer to add a tip/gratuity.
- Under the FLSA, a tip is a sum presented by a customer as a gift or gratuity in recognition of some service performed for him. It is to be distinguished from payment of a charge made for the service. A compulsory charge for service, such as 10% of the amount of the bill (or, in your example, a $10 labor charge), imposed on a customer by an employer’s establishment is not a tip. Even if the employer distributes the service charge to its employees, the charge cannot be counted as a tip received. Similarly, where negotiations for banquet facilities include amounts for distribution to employees, the amounts so distributed are not counted as tips received. The implication of imposed gratuities and similar charges not being “tips” under the FLSA is that those amounts may not be applied towards the tip credit.