Tag Archives: Service Charge

by | October 13, 2013 · 6:27 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 Restaurant Tips And Service Chargesbecomes 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:  http://www.news10.net/news/national/260375/5/Tip-ruling-could-prove-taxing-to-servers-restaurants

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by | February 1, 2013 · 7:45 am

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 Hospitality Industry Class Action Lawsuitswhether 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:  http://thedailystar.com/localnews/x1746084500/Otesaga-pays-550-000-to-settle-lawsuit

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by | July 23, 2010 · 5:53 am

Hospitality Industry Employees Risks: Hawaiian Hotels Violated State Law When Service Employees Not Given 100% Of Service Charges For Food And Beverage Service

“…The suit, filed by Turtle Bay employees in January 2009, claimed the resort violated a state law enacted in 2000 that requires hotels and restaurants to give 100% of service charges for food or beverage service entirely to employees – unless they tell customers that management’s keeping a portion, the Honolulu Star-Advertiser says…”

Employees of the Turtle Bay Resort on Oahu’s scenic North Shore won a $526,000 settlement  in a lawsuit over tips that had been split among workers and the company without customers knowing.

At least nine similar suits have been filed over the last two years against major Hawaii hotels, Brandee Faria – the Turtle Bay employees’ lawyer – tells the Star-Advertiser. And it’s not only the employees who are hiring lawyers.

Some of the suits were filed on behalf of hotel customers who thought they’d paid tips to staffers – not hotel management.

In a case against the Four Seasons hotels on Maui and the Big Island, the Star-Advertiser says that Hawaii Supreme Court in March ruled that hotel and restaurant employees may sue under the law.

The Turtle Bay settlement covers 130 employees who worked at the hotel between 2005 and 2009; the amount would mean $4,046 per employee if the settlement was shared equally, the story says. Settlement checks were mailed out recently.

For more: http://travel.usatoday.com/hotels/post/2010/07/hawaii-hotel-workers-win-526000-settlement-in-back-tips/100924/1

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by | July 17, 2010 · 10:40 am

Hotel Industry Employee Risk Management: Hotel Ownership Must Insure Compliance With State Laws Regarding “Service Charges” Being Withheld Illegally From Service Staff Which Can Result In “Triple Damages” Being Awarded

“…the case involved a portion of service charges — which are added onto bills at the end of banquets, weddings and large events — being withheld from servers, and all hotel and restaurant staff working at least eight-hour shifts were having 30-minute meal breaks deducted from their paychecks even though they weren’t receiving them.”

“What we alleged in this case was a portion of [the service charge] was going to managers, the sales department, and others who aren’t permitted under law to dip into this money intended for waitstaff,” he said.

“…state law ordering food establishments found to be withholding wages and tips to pay employees up to three times as much as they’re owed…”

The Orchards Hotel has agreed to a $240,000 proposed settlement in a class action lawsuit involving approximately 150 current and former hourly employees.

With state law ordering food establishments found to be withholding wages and tips to pay employees up to three times as much as they’re owed, the employees at The Orchards will receive between two and three times what they were owed in wages and tips, Holtzman said.

“The settlement is not only the recovery each employee is owed, but a multiple of what is owed,” he said.

For more:   http://www.berkshireeagle.com/local/ci_15528594

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