Tag Archives: Gratuity
Hospitality Industry Employment Solutions: “Gratuity Guide” Released By American Hotel & Lodging Association
November 27, 2013 · 9:36 am
Hospitality Industry Legal Risks: IRS Rules That “Automatic Gratuities” Are Now “Service Charges”; Restaurants Must Add To Paychecks As Wages
“…The IRS has signaled its intent to scrutinize auto-gratuity patterns to determine whether they are tips, or if there has been more coercion so it 
becomes more of a service charge…rather than receiving automatic gratuities at the end of the night, under the new IRS rule, those payments would be tacked onto paychecks as wages…Darden Restaurants – which operates Red Lobster, Olive Garden, Longhorn Steakhouse Seasons 52, The Capital Grille and other chains – is testing a concept that eliminates 18 percent automatic gratuities for parties of eight or more, and instead leaves tip percentage calculations at the end of a bill…”
Even with automatic tipping, customers have always faced a decision over how much to leave a server. Now, thanks to an IRS ruling, restaurants are being thrown into the debate – and are faced with a decision of their own: Should tipping for large parties be left to the customer or should the restaurant tack it on to the bill?
The IRS ruling, which takes effect in January, will treat automatic gratuities as service charges, rather than tips. The switch means servers will no longer be responsible for reporting those automatic tips as income. And it also means automatic gratuities will be considered a part of a server’s wages, making that money subject to payroll tax withholding and delaying receipt until the next paycheck.
Understandably, many servers aren’t happy about the tax policy, but neither are restaurant owners. The change will create additional accounting and bookkeeping work, because automatic gratuities will have to be factored into hourly pay rates that could vary depending on the number of large parties served by the employee.
The IRS policy change also could mean the loss of an income tax credit, which restaurants receive for paying Medicare and Social Security taxes on employees’
reported tips. Service charges are not eligible for the credit.
For more:Â http://www.news10.net/news/national/260375/5/Tip-ruling-could-prove-taxing-to-servers-restaurants
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Filed under Employment Practices Liability, Labor Issues, Liability, Management And Ownership, Risk Management
Hospitality Industry Legal Risks: New York Hotel Settles Federal Class-Action Lawsuit For $550,000; “Service And Grutuity Charge” Not Paid To Workers
“…alleged that guests were not told that service charge was part of their bills. The amount of charge varied, depending on the service…in the dining room, standard meals were charged at a certain amount per diner 
whether it was $5 or $8 or whatever, per meal, and also that the lodging charges were per night…”
Leatherstocking Corp., owner of the Otesaga Resort Hotel in Cooperstown, has agreed to pay a $550,000 settlement in a federal class-action lawsuit brought by service workers, largely over the distribution of service-charge proceeds. The workers alleged in the suit filed in Albany in 2010 that the hotel’s actions violated New York labor law the federal Fair Labor Standards Act.
The lawsuit also alleged violations of overtime and minimum-wage standards, but the bulk of the case focused on a “service/gratuity†charge that the hotel charged guests and restaurant patrons, according to court papers.
According to court documents, the hotel insisted that it properly distributed all of the service-charge money to employees. The dispute centered on which employees were paid, according to the documents.
The plaintiffs contended that management employees who were not legally entitled to a share of the payments nonetheless received them, while the hotel countered that that all of the people it paid were entitled to a share of the money.
For more:Â http://thedailystar.com/localnews/x1746084500/Otesaga-pays-550-000-to-settle-lawsuit
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Filed under Employment Practices Liability, Insurance, Labor Issues, Liability, Management And Ownership, Risk Management
