AUTOMATIC GRATUITY LAW OVERVIEW FOR RESTAURANT

OWNERS

Updates and changes to tax-related rules and regulations are common, which is why it is crucial to stay abreast of events, like the automatic gratuity law, that have the potential to affect your compliance.

The policy issued in 2012 (the automatic gratuity law) that changed the way tips are considered in relation to income was only recently implemented.

This lengthy time frame allowed restaurants sufficient time to adjust their practices.

The Internal Revenue Service (IRS) has reclassified automatic gratuities so instead of being considered tips, they are now considered standard wages.

Gratuity Criteria From The IRS

The customer should make the payment willfully, and free from compulsion.

The customer decides the amount of money to be offered as a tip.

Payments of gratuities are not subject to negation by the staff, or to restaurant policies.

The customer determines which employees receive gratuities.

Gratuity Criteria From The IRS

How Should You Proceed in the Future?

Thoroughly review policies and procedures and make needed changes to both automated and manual reporting systems. These should clearly reflect the differences between charges and tips.

Allow customers to have full, pressure-free discretion in tipping.

Consult with qualified attorneys, tax advisors, and payroll service providers if additional guidance is needed.

How Should You Proceed in the

Future?

What This Means To Restaurant Owners

Full compliance means you’ll avoid the potential penalties and liability issues.

It also allows businesses to take advantage of the FICA tip credit that enables business owners to pay staff members who receive tips less than minimum wage.

What This Means To Restaurant

Owners