Can a restaurant force an employee to declare cash tips or be fired?
August 21, 2020 11:57 AM Subscribe
For those who’ve worked in the service/restaurant industry I have a question about claiming tips, and what role the restaurant has in making sure you claim cash tips (not credit) made during a shift.
My restaurant is under new management, and after returning from a Covid break, have implemented a new policy. You must declare all cash tips daily, or you’ll be fired.
I’ve never heard of this. Other employees that have 20 years in the industry have never heard of this. Credit tips are, of course, declared automatically. That’s a given. They are recorded and declared with restaurant receipts.
But forcing employees to declare cash tips seems something completely different. I understand that all cash tips should be declared. But this seems to be something between the IRS and the worker.
1) With credit tips there is documentation with the restaurant the amount of credit tips that should be declared. The restaurant is involved in the tip transaction.
2) However there is no documentation for cash tips. It’s a transaction between the customer and employee. If I receive a 100 dollar cash tip, I should declare it. But the company has no record nor has anything to do with that tip. It doesn’t involve the company at all. Do they have a right to enforce it?
One employee complained about the new policy, and was told simply that “it is illegal to not claim all tips, so we must declare all cash tips or be fired”.
1) I have no idea how the restaurant will make sure we claim cash tips. Make us empty our pockets before we clock out?
2) They are so adamant about this new policy, I wonder what they’re getting out of this.
3) If I object, I’m sure I’ll be fired.
But I’m really curious if this is legal at all, why the restaurant is doing this, and what our rights are. And if I’m crazy and should just go along with this.
And again, the restaurant’s defense is it’s illegal not to claim all tips, even if cash. But they are not the IRS, and they seem to be taking on IRS responsibilities.
Any help or advice would be greatly appreciated. Thank you!
My restaurant is under new management, and after returning from a Covid break, have implemented a new policy. You must declare all cash tips daily, or you’ll be fired.
I’ve never heard of this. Other employees that have 20 years in the industry have never heard of this. Credit tips are, of course, declared automatically. That’s a given. They are recorded and declared with restaurant receipts.
But forcing employees to declare cash tips seems something completely different. I understand that all cash tips should be declared. But this seems to be something between the IRS and the worker.
1) With credit tips there is documentation with the restaurant the amount of credit tips that should be declared. The restaurant is involved in the tip transaction.
2) However there is no documentation for cash tips. It’s a transaction between the customer and employee. If I receive a 100 dollar cash tip, I should declare it. But the company has no record nor has anything to do with that tip. It doesn’t involve the company at all. Do they have a right to enforce it?
One employee complained about the new policy, and was told simply that “it is illegal to not claim all tips, so we must declare all cash tips or be fired”.
1) I have no idea how the restaurant will make sure we claim cash tips. Make us empty our pockets before we clock out?
2) They are so adamant about this new policy, I wonder what they’re getting out of this.
3) If I object, I’m sure I’ll be fired.
But I’m really curious if this is legal at all, why the restaurant is doing this, and what our rights are. And if I’m crazy and should just go along with this.
And again, the restaurant’s defense is it’s illegal not to claim all tips, even if cash. But they are not the IRS, and they seem to be taking on IRS responsibilities.
Any help or advice would be greatly appreciated. Thank you!
One reason they would want to know is to make sure you're making minimum wage. If you're paid the tipped worker minimum wage + tips, your tips are supposed to bring you up to regular minimum wage; if tips tend to be on the low side at your restaurant then the restaurant might owe workers more (or they might have been burned by workers claiming this, and they want to have documentation to protect themselves in the future).
Totally spitballing, though! Have you tried just asking why, since it's such a new and unusual policy? Not in a combative, "you can't make me do this" kind of way, just in a curious kind of way.
posted by mskyle at 12:10 PM on August 21, 2020
Totally spitballing, though! Have you tried just asking why, since it's such a new and unusual policy? Not in a combative, "you can't make me do this" kind of way, just in a curious kind of way.
posted by mskyle at 12:10 PM on August 21, 2020
Not only can they, they're supposed to. From the IRS: Tip Recordkeeping & Reporting. Lying and fraud are rampant from all quarters in food service, but the rules exist.
posted by the christopher hundreds at 12:10 PM on August 21, 2020 [8 favorites]
posted by the christopher hundreds at 12:10 PM on August 21, 2020 [8 favorites]
Florida Constitution, Article X, Section 24 (c) Minimum Wage
"For tipped Employees meeting eligibility requirements for the tip credit under the [Fair Labor Standards Act] FLSA, Employers may credit towards satisfaction of the Minimum Wage tips up to the amount of the allowable FLSA tip credit"
Fair Labor Standards Act (FLSA) Tip Credit (note Bulletin):
Section 3(m) of the FLSA permits an employer to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage. Thus, the maximum tip credit that an employer can currently claim under the FLSA section 3(m) is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13). Under certain circumstances, an employer may be able to claim an additional overtime tip credit against its overtime obligations. [...]
Requirements
The employer must provide the following information to a tipped employee before the employer may use the FLSA 3(m) tip credit:
1) the amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;
2) the additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);
3) that the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;
4) that all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and
5) that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.
The employer may provide oral or written notice to its tipped employees informing them of items 1-5 above. An employer who fails to provide the required information cannot use the section 3(m) tip credit and therefore must pay the tipped employee at least $7.25 per hour in wages and allow the tipped employee to keep all tips received.
Employers electing to use the tip credit provision must be able to show that tipped employees receive at least the minimum wage when direct (or cash) wages and the tip credit amount are combined. If an employee's tips combined with the employer's direct (or cash) wages of at least $2.13 per hour do not equal the minimum hourly wage of $7.25 per hour, the employer must make up the difference.
Not a lawyer, not your lawyer, etc.: it appears your new employer requires the tip information to document its FLSA credit claim (reducing out-of-pocket payroll expenses); did the bosses provide workers with the entire 5-point explanation, either orally or in writing? Just in case: MetaFilter's Get A Lawyer wiki includes low or no cost legal aid info.
posted by Iris Gambol at 1:10 PM on August 21, 2020 [2 favorites]
"For tipped Employees meeting eligibility requirements for the tip credit under the [Fair Labor Standards Act] FLSA, Employers may credit towards satisfaction of the Minimum Wage tips up to the amount of the allowable FLSA tip credit"
Fair Labor Standards Act (FLSA) Tip Credit (note Bulletin):
Section 3(m) of the FLSA permits an employer to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage. Thus, the maximum tip credit that an employer can currently claim under the FLSA section 3(m) is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13). Under certain circumstances, an employer may be able to claim an additional overtime tip credit against its overtime obligations. [...]
Requirements
The employer must provide the following information to a tipped employee before the employer may use the FLSA 3(m) tip credit:
1) the amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;
2) the additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);
3) that the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;
4) that all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and
5) that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.
The employer may provide oral or written notice to its tipped employees informing them of items 1-5 above. An employer who fails to provide the required information cannot use the section 3(m) tip credit and therefore must pay the tipped employee at least $7.25 per hour in wages and allow the tipped employee to keep all tips received.
Employers electing to use the tip credit provision must be able to show that tipped employees receive at least the minimum wage when direct (or cash) wages and the tip credit amount are combined. If an employee's tips combined with the employer's direct (or cash) wages of at least $2.13 per hour do not equal the minimum hourly wage of $7.25 per hour, the employer must make up the difference.
Not a lawyer, not your lawyer, etc.: it appears your new employer requires the tip information to document its FLSA credit claim (reducing out-of-pocket payroll expenses); did the bosses provide workers with the entire 5-point explanation, either orally or in writing? Just in case: MetaFilter's Get A Lawyer wiki includes low or no cost legal aid info.
posted by Iris Gambol at 1:10 PM on August 21, 2020 [2 favorites]
I wonder if the restaurant received bailout funds and suspects that their tax returns will consequentially be under increased scrutiny? Observe how the restaurant enforces the tip reporting and then adjust what you do accordingly? You've got to report at least some cash tips to have plausible deniability...
posted by Larry David Syndrome at 1:12 PM on August 21, 2020 [1 favorite]
posted by Larry David Syndrome at 1:12 PM on August 21, 2020 [1 favorite]
Not only can they, they're supposed to. From the IRS: Tip Recordkeeping & Reporting. Lying and fraud are rampant from all quarters in food service, but the rules exist.
From that link, it's worth noting that the employer is responsible for paying their share of Social Security & Medicare taxes on all wages, including cash tips. So the amount of cash tips received affected the restaurant's tax liability, and is not just "between the IRS and the worker".
posted by Johnny Assay at 1:21 PM on August 21, 2020 [5 favorites]
From that link, it's worth noting that the employer is responsible for paying their share of Social Security & Medicare taxes on all wages, including cash tips. So the amount of cash tips received affected the restaurant's tax liability, and is not just "between the IRS and the worker".
posted by Johnny Assay at 1:21 PM on August 21, 2020 [5 favorites]
Are they making you pool cash tips and then tipping out the back of the house? I worked at a restaurant once that did that.
posted by Lawn Beaver at 1:24 PM on August 21, 2020 [1 favorite]
posted by Lawn Beaver at 1:24 PM on August 21, 2020 [1 favorite]
@Johnny Assay: Yes, and it seems the regulations give the employer a get out of jail free card if the employee does *not* report, which may be why it's not common. Reporting cash tips cost the employer money since they now need to pay more taxes.
posted by mark k at 3:37 PM on August 21, 2020
posted by mark k at 3:37 PM on August 21, 2020
To a certain extent, claiming cash tips helps you in a couple of ways - your income is reported to Social Security, which affects how your benefits will be calculated down the road; if you need to apply for credit for a mortgage or a car, those pay stubs will get you there with more confidence in your ability to pay than a fistful of wadded bills will. Play the long game, as long as you can eat.
Note I didn't say all tips.
posted by halfbuckaroo at 5:08 PM on August 21, 2020 [2 favorites]
Note I didn't say all tips.
posted by halfbuckaroo at 5:08 PM on August 21, 2020 [2 favorites]
Iris Gambols answer was very informative. I know in Missouri in some places that tip pool the tips are all put in one pool and every employee of the pool gets paid the same wage that week.
posted by The_imp_inimpossible at 3:14 AM on August 24, 2020
posted by The_imp_inimpossible at 3:14 AM on August 24, 2020
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