Employer Overstating Tips

[jnh978]

What is the name of your state? Massachusetts

I work in a restaurant and management has just implemented a new tip declaration/tip out policy.

On our paychecks, they are declaring:

100 % of our credit card tips (minus the amount that is tipped out to others)
and
10 % of our cash tips (minus the amount that is tipped out to others)

In the hopes of avoiding an audit, management wants all of the tips declared (from all tipped employees) to equal 18% of the total sales from the restaurant.

If the amount declared from the above calculation does not equal 18% of sales, they will ADJUST the declaration to meet 18% of total sales.

In the last pay period this occured but my tips were incorrectly and grossly overstated by about $700-$800.

I spoke with management about this and they said that they will try and find a way to hold back $700-$800 over the next few pay periods. I am concerned because I have little confidence that this will happen as the tip declaration system is very confusing and there are many employees.

My questions are:

1) Is it legal for them to adjust my tips to meet their 18% of total sales requirement? Is it legal for them to adjust my tips in general?

2) What if I do not get the $700-$800 recouped in future paychecks? Can I file a substitute W-2 come tax time (for the 2006 tax year)? What are the consequences of this?

Thank you for your responses!

 

[LdiJ]

What is the name of your state? Massachusetts

I work in a restaurant and management has just implemented a new tip declaration/tip out policy.

On our paychecks, they are declaring:

100 % of our credit card tips (minus the amount that is tipped out to others)
and
10 % of our cash tips (minus the amount that is tipped out to others)

In the hopes of avoiding an audit, management wants all of the tips declared (from all tipped employees) to equal 18% of the total sales from the restaurant.

If the amount declared from the above calculation does not equal 18% of sales, they will ADJUST the declaration to meet 18% of total sales.

In the last pay period this occured but my tips were incorrectly and grossly overstated by about $700-$800.

I spoke with management about this and they said that they will try and find a way to hold back $700-$800 over the next few pay periods. I am concerned because I have little confidence that this will happen as the tip declaration system is very confusing and there are many employees.

My questions are:

1) Is it legal for them to adjust my tips to meet their 18% of total sales requirement? Is it legal for them to adjust my tips in general?

2) What if I do not get the $700-$800 recouped in future paychecks? Can I file a substitute W-2 come tax time (for the 2006 tax year)? What are the consequences of this?

Thank you for your responses!

My recommendation is that you find another employer. 18% of total sales is completely unrealistic even for the most successful restaurant.[ Sure a server might even exceed that on a super good night, but won't even touch it on an average night.

The IRS wants to see 8-10% of sales declared as tip income. However what the IRS REALLY wants is that ACTUAL tip income is declared.

Its not only fair but realistic that you should have to report your entire tip income from credit cards. That is real and precise. However cash tips are another story. Generally cash tips are much lower than credit card tips.

Again, my recommendation is that you find another employer.

I used to own a restaurant so you are getting my perspective as both a professional tax preparer and a former restaurant owner.

 

[jnh978]

thank you for your response but my concern is whether or not they can just adjust my declared tips on my paycheck without any justification except for wanting to meet their 18% of sales threshold.

for example if my declared tips are 1000 for a pay period (cc tips + [cash tips *.1]) minus tip out ...... and management still finds that all the decalred tips for the restaurant are not 18% .....they may just blindly adjust my tips so they THEY will have less chance for an audit. so there is no evidence that what they're adjusting was ever actually earned by me (but i have to pay taxes on it !)**************..is this legal ??

and my tips on my last check was $800 over what should have been there ! what if they don't bother to recoup this money for me? I think i would need to file a substitute W-2...is this correct? i've never done that before.


thanks again!

 

[LdiJ]

thank you for your response but my concern is whether or not they can just adjust my declared tips on my paycheck without any justification except for wanting to meet their 18% of sales threshold.

for example if my declared tips are 1000 for a pay period (cc tips + [cash tips *.1]) minus tip out ...... and management still finds that all the decalred tips for the restaurant are not 18% .....they may just blindly adjust my tips so they THEY will have less chance for an audit. so there is no evidence that what they're adjusting was ever actually earned by me (but i have to pay taxes on it !)**************..is this legal ??

and my tips on my last check was $800 over what should have been there ! what if they don't bother to recoup this money for me? I think i would need to file a substitute W-2...is this correct? i've never done that before.


thanks again!

You can't file a substitute W2 in this case. What you can do is seriously protest what they are doing (because it isn't really legal), or take them to court over it**************.or find another job.

If they lose all their servers at once, or in a short amount of time, they are going to quickly "re-think" their policy.

 

[efflandt]

Any idea why your employer would want to artificially inflate tips? I cannot see how this would help him at all, unless he has something else to hide (money laundering), and trying to avoid any chance of audit. Does he pay less than minimum wage and use tips to make up the difference?

I always heard that 15% tip was normal for food service (more or less depending upon quality of service). So his assuming 18% average is unrealistic and suspicious, possibly raising a red flag he is trying to hold down.

 

[justalayman]

I would take two steps, in this order:

ask the employer to only include actual (your full legally reportable amount) when issuing paychecks (which you are reporting correctly, correct?)

If number 1 fails to correct the problem, call the IRS and inform them of the situation.

The whole tipping situation is such a pain in the rear for anybody I have ever spoken with about it. While the waitstaff wants to "hide" the true amount of the tips to avoid taxes. (which obviously is illegal) the employer wants to report true amount. In many states the hourly pay plus the tips must equal that states minimum wage. If it doesn't, the employer has to pay (hourly) the waitstaff more. I believe Mass is one of these states. I would guess the employer needs to report the amount that is being reported to meet that wage threshold.

 

[Snipes5]

Reporting 18% average tips is going to raise a huge red flag and wave it for the state and the IRS to see.

I would find another job.

Snipes

 

[jnh978]

Thank you for all your responses!

I will try and address all questions:

"You can't file a substitute W2 in this case"

Why not? I read the instructions for form 4852 and it seems as though i can if the issued W-2 is incorrect. If their W-2 is wrong then why should I have to pay taxes on earnings that I didn't actually make?

"What you can do is seriously protest what they are doing (because it isn't really legal)"

Please tell me, what exactly is it that isn't legal.

"Any idea why your employer would want to artificially inflate tips? I cannot see how this would help him at all, unless he has something else to hide (money laundering), and trying to avoid any chance of audit. Does he pay less than minimum wage and use tips to make up the difference?

I always heard that 15% tip was normal for food service (more or less depending upon quality of service). So his assuming 18% average is unrealistic and suspicious, possibly raising a red flag he is trying to hold down."

Under advice from the restaurant's accountant, they want to declare (the restaurant as a whole) 18% of total revenue in order to avoid the chance of an audit. This is a legit place...no laudering as far as i know! so if all the server's and bartender's declared tips do not equal 18% of total revenue then they will add additional tips to certain paychecks (this is what happened to me)....I want to know if this is legal or not (since there is no justification for adding those additional tips)

We make 2.63 per hour......the tips will bring it up to more than minimum wage (6.75 in mass i believe).

18% is a reasonable amount to expect in this restaurant.


Also.....how do i recoup the 800 extra that they added onto my check?...that equal about 200 in taxes for me!


Thank you all very much for your help!

 

[justalayman]

I still stand by my advice:

I would take two steps, in this order:

ask the employer to only include actual (your full legally reportable amount) when issuing paychecks (which you are reporting correctly, correct?)

If number 1 fails to correct the problem, call the IRS and inform them of the situation.

Now as far as the incorrect reporting of the $800.

1. ask them to make the appropriate adjustments on you next check.

2. if number 1 fails, call the IRS and report this situation and ask for their direction.