New IRS restaurant tip rule riles some

2014-06-15T10:30:00Z 2014-06-16T07:06:06Z New IRS restaurant tip rule riles someBy Keith Benman keith.benman@nwi.com, (219) 933-3326 nwitimes.com

The automatic tip many restaurants tack on the bill for large groups is getting another look in light of new Internal Revenue Service rules on how to report those tips as wages.

Under new regulations that took effect this year, restaurant operators must now report those tips as "non-tip wages," instead of relying on servers to report the tips themselves.

That has some restaurants halting the practice of adding tips for large groups onto their bill, a move that often leaves wait-staff short-tipped and sometimes even short of earning minimum wage.

Rosemary, a waitress who asked that her last name not be used, told The Times her employer stopped putting the automatic tips on large group bills in January.

That has led to her at times waiting exclusively on large parties for five hours or more and receiving cash tips of less than $20.

Her hourly wage is set at the allowable pre-tip minimum for tipped workers of $2.13 per hour. So with the measly tips some large groups are now leaving, she does not even make the federal minimum hourly wage of $7.25.

"It's quite aggravating when you go and see the tip they actually leave," she said of some parties. "It's like a slap in the face."

"I don't mind being taxed on it," she added. "Tax it. I don't care."

Restaurant operators have been caught in a tough spot by the rule, having to choose between increased paperwork, potential reporting liabilities, and explaining it all to their employees.

"It is a little more complicated for restaurants on how to structure it," said Joseph Scalzo, owner of Ciao Bella, in Schererville. "And you have to learn to explain to your employees what to do."

Scalzo last month was consulting with his accountant to see what changes might be necessary in his bookkeeping or his large group tipping practices.

El Taco Real, in Hammond, does not add tips onto the check for large groups, according to owner Raymundo Garcia. He said restaurants that do tack a tip for large groups on a check are in fact levying a service charge.

He said in general the policy of leaving the tip up to customers, even for large groups, works for his restaurant. But he understands why some restaurants would tack it on the check.

"You do get some large groups that want to tip for 15 or 20 people like it's just a husband and wife eating out," he said.

He said a recent experiment by Darden Restaurants where a suggested range of tips for large groups is tacked on bills is an interesting twist on the whole thing. But for now, most restaurants appear to be sticking with the automatic tips for large groups, recognizing it constitutes an important part of their employees' income.

Restaurant customers don't always realize how vital tips are to waiters and waitresses. In large part, that's because the pre-tip minimum hourly wage for wait staff has been stuck at $2.13 per hour since 1991. If wait staff don't make enough in tips to take them up to the non-exempt minimum wage of $7.25 per hour, restaurant operators are obliged by law to fill that gap out of restaurant revenues.

But that doesn't always happen. And those who do the right thing concerning tips and the minimum wage often find it a bookkeeping nightmare. It can be ditto for wait staff when it comes time to do their own taxes.

The National Restaurant Association has tip-toed delicately around the topic of the new IRS regulations.

In an e-mailed statement to The Times, the association noted it is important to remember that the law considers all tips as wages.

"While this IRS action does not change the law or initiate new policy, the ruling implies enhanced IRS enforcement of issues related to classification of tips and service charges," the statement read. "We expect some restaurateurs may, as a result, re-examine how they handle automatic gratuities."

Copyright 2014 nwitimes.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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