By Aaron Travis, Netchex Sales Engineer

Tipped EmployeesDoes the ACA Have Your Restaurant Under Water?

The Affordable Care Act has presented unique challenges to all types of industries. One industry that has been impacted arguable more than any others is the restaurant industry. In addition to the normal challenges of tracking employee eligibility, reporting 1095s, and meeting affordability requirements, restaurants are left with a particular challenge that most other companies don't understand - simply collecting money!

For the uninitiated, it looks something like this....

YouYou take your family out to dinner and at the end of your evening, leave a generous tip for your server for a job well done. This server is paid an hourly rate that is (in most states) less than minimum wage. At the end of the server's shift, the manager gives your server a "tip out" for all of their tips earned during this shift. Your server counts on that daily tip out to pay their bills.

Every two weeks or so, the restaurant processes payroll. When they do this, they pay the employee their hourly wage and then record the "tip out" amounts so that they can be taxed appropriately. Here's what usually happens:

The $0.00 ProblemThe $0.00 Problem

0 hours x $2.13/hr ($170.40)+ $1,000 in tips = $1,170.40 in taxable wages.Let's say Med/SS + Federal/State Income tax come to 15% - that leaves a tax liability of $175.56There's only $170.40 to deduct from, so we take as much as we can and this employee takes home a $0.00 net check

UpUp until this year, not a big problem. Now with the Affordable Care Act, that employee could have elected an "affordable" insurance plan so as to avoid tax penalties so now we are trying to deduct an additional $90.00/month that simply isn't there!

So what can we do?

Presented with this challenge, there are three main solutions I recommend depending on the specic restaurant:

The third option is to start paying tips out as part of payroll instead of nightly. While this approach seems radical, I am seeing more and more restaurants move to this option. The risk of employees leaving and going to work somewhere else is lowering as more restaurants adopt this approach. This option also reduces the amount of cash that needs to be kept on hand at the restaurant and puts the manager back out on the oor. A good way to offset any employee push back from this solution is to offer a no cost debit card for any employees without bank accounts as well as online employee access so they can have immediate access to their payroll payments.

AtAt the end of the day, if you are a restaurant owner, administrator, or you advise restaurants, the affordable care act is changing more than just insurance. Be sure you are partnering with someone that understands your unique challenges and has the right tools and experience to administer these things for you so you can get back to focusing on your customers!

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Leverage a strong benets tool to alert you of any unpaid amounts. One such tool is Netchex Benets Reconciliation which compares what was elected to what was collected to let a manager or administrator see how much to withhold from "tip outs."

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Leverage a strong payroll tool to alert you of these under-collections BEFORE they happen. One such tool is Netchex Exceptions report that will ag managers or administrators of people receiving a $0.00 check or missing deductions BEFORE payroll is nalized. Using this information, the manager can then more easily withhold tips on the same day.

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2) SINGLE SOLUTION: Next, nd a system that does Benets Administration AND Payroll in a single system – NOT two systems that are “integrated” together. We all know how well “integration” works right? As you can see, we need to be tracking hours worked right next to benet plans offered, so the ONLY way to administer this without manual intervention is to nd a system that handles both sides of the equation. Stand Alone benets products and payroll products won’t get you where you need to be. Here’s another great article on why you need a single system to tackle this.

3)3) ASK QUESTIONS: As helpful as I hope this article is, if this is the rst time you’re hearing about this form and your responsibility, someone has not been doing their job to serve as your advocate and advisor.

It’s not too late to do something about 1095 reporting for January 2016. Don’t wait any longer to nd a tool that can help you administer this well.