The Complete Guide to Tips & Gratuities A Guide for Employees Who Earn Tips & Employers Who Manage Tipped Employees and Their Accountants

By Sharon Fullen

There are millions of workers in the USA that rely on tips for most of their income, and there are well over two million businesses where the employers rely on tipped employees. According to recent statistics from the U.S. Department of Labor, food and beverage service-related workers held 6.5 million jobs. The U.S. Department of Labor estimates in a recent study that tips and gratuities may account for well over $5 billion per year being left on plates and tip trays, financed on credit cards and handed directly into happy, open palms.

But let’s face facts. Relying on customers’ tips for your income is tough. The average customer just doesn’t realize how difficult and hard the average waiter, waitress, hair dresser, concierge, cab driver, maître d', or bartender works for their money. Dealing with and satisfying the general public is one of the most demanding jobs around. Many, if not most, tipped employees have a tough time making ends meet. And then there are the complicated IRS tax laws regarding tipping and gratuities that most employees and few employers know how to handle correctly.

For the first time this new book deals with all aspects of tips and gratuities. For the employee or self-employed, learn how to earn more tips and how to properly account for and pay taxes on them. For the employer: how to manage and properly account for the taxes on tipped employees; for the bookkeeper and accountant: get the latest on tax and withholding laws. Apart from all great and practical advice in the book, it has to be remembered that tips have to be earned, thus there are literally hundreds of little tricks, hints and suggestions to help tipped employees – well, make more tips!

• Language: English
• Publisher: Atlantic Publishing Group, Inc.
• Release date: Jan 12, 2005
• ISBN: 9781601380890

Book preview

The Complete

Guide to Tips

& Gratuities:

A Guide for Employees Who Earn

Tips & Employers Who Manage Tipped

Employees and Their Accountants

Sharon Fullen

The Complete Guide to Tips & Gratuities: A Guide for Employees Who Earn Tips & Employers Who Manage Tipped Employees and Their Accountants Atlantic Publishing Group, Inc. Copyright © 2004

1210 SW 23rd Place • Ocala, Florida 34474

800-541-1336

352-622-5836–Fax

www.atlantic-pub.com–Web

[e-mail]–E-mail

SAN Number :268-1250

All rights reserved. No patent liability is assumed with respect to the use of information contained herein. Although every precau-tion has been taken in the preparation of this book, the publisher and author assume no responsibility for errors or omissions. No warranty is implied. The information is provided on an as is

basis.

International Standard Book Number: 0-910627-38-X

Library of Congress Cataloging-in-Publication Data Fullen, Sharon L.

The complete guide to tips & gratuities : a guide for employees who earn tips & employers who manage tipped employees and their accountants / Sharon Fullen.

p. cm.

Includes index.

ISBN 0-910627-38-X (alk. paper)

1. Tipping. 2. Tipping--United States. I. Title: Complete guide to tips and gratuities. II. Title.

HD4928.T5F85 2004

331.2'166--dc22

2004013993

Printed in the United States

Table of Contents

Introduction Who Should Read This Book ........................................7

Chapter 1

What Is a Tip?

Tips Are Wages..................................................11

Tips Are Controversial ....................................12

Chapter 2

To Insure Promptitude—The History of Tipping Your Guests Must Pay ....................................16

Tipping in America ..........................................17

Non-Tippers, Beware ......................................17

Sharing the Wealth ..........................................18

The Anti-Tipping Movement..........................19

Tipping in the 21st Century ............................20

Chapter 3

The Why of Tipping

Why Do People Tip? ........................................21

What? No Tip? ..................................................23

Why Some People Don’t Tip ..........................24

Tipping in Other Cultures ..............................26

Chapter 4

Tip Etiquette

Giving Tips ........................................................29

Who Should Be Tipped?..................................30

People Are Confused ......................................30

When You Are on the Receiving End............31

Tip Jars ..............................................................33

Educating Customers ......................................35

3

Chapter 5

How to Increase Your Tips

Percentage or Sales ..........................................37

Why Do Some People Earn Better Tips? ......38

Look in the Mirror First ..................................39

Little Tips for Bigger Tips................................39

Do Your Own Research ..................................44

Teamwork = Better Tips ..................................48

Salesmanship ....................................................49

Chapter 6

Become a Commission Salesperson

Be Prepared ......................................................51

Be Proactive ......................................................52

Be Service-Oriented..........................................53

Be a Salesperson ..............................................54

Be Professional..................................................55

Suggestive Selling ............................................56

Dazzle Them with Your People Skills ..........60

Pride in Your Job ..............................................60

Chapter 7

What Employers Can Do to Boost Service and Tips Increased Sales ..................................................61

Improved Customer Service ..........................62

Decreased Employee Turnover ......................62

Measured Performance....................................63

Be Proactive ......................................................63

Tip-Sharing ........................................................67

4

Chapter 8

Reporting Your Tips to the IRS

Definitions ........................................................69

When You Must Report Your Tips ................71

Daily Recordkeeping........................................72

Reimbursed Expenses......................................74

Deductible Expenses ........................................75

Monthly Reporting ..........................................77

Looking at Your W-2 ........................................78

Allocated Tips ..................................................79

Tip-Sharing ........................................................80

Confused So Far?..............................................81

IRS Tip Programs..............................................86

Reporting Tips on Your Tax Return ..............88

Claiming Gifts ..................................................89

Filing Your Tax Return ....................................90

Saving Your Records ........................................90

The Cost of Not Having Records ..................91

The Risks You Take ..........................................91

Tip Audits ..........................................................91

Tips and the Self-Employed............................91

Chapter 9

Why Should I Report My Tips?

Tips Are Income................................................94

Taxes and No Income ......................................94

Paying Penalties................................................95

Other Financial Penalties ................................96

You May Be Short-Changing Yourself ..........98

You Could Lose Your Job ................................98

5

Chapter 10

Employers and Tips

Definitions ........................................................99

Rules for Large Food and Beverage

Businesses....................................................101

IRS-Compliance Programs ............................103

Self-Regulation................................................108

Encouraging, Supporting and Requiring

Compliance ................................................109

Legislation and Court Rulings......................113

FICA Tax Credit ..............................................114

Your Payroll Accounting Needs ..................115

Chapter 11

Wage Laws and Tip Regulations

Minimum Wages ............................................117

Overtime for Tipped Employees ..................119

Tip Pools ..........................................................122

Employment Rights and Obligations..........124

Chapter 12

Resources

Books ................................................................127

Customer Service and Sales..........................127

Internal Revenue Service ..............................127

Publications ....................................................127

Forms................................................................128

Tax Topics ........................................................129

Legal ................................................................129

Payroll Software..............................................129

Minimum Wages ............................................129

Restaurant Industry ......................................135

Pizza Delivery ................................................136

6

I n t r o d u c t i o n

i

When you pocket your tip change or deposit it into your checking account, have you ever stopped to think you are participating in a multi-billion-dollar international economic system? Perhaps no other financial transaction is as commonplace or as confusing. Tipping is a paradox for the giver and the receiver—a voluntary transaction that has become compulsory and expected; a gift that is measured and taxed; an informal custom governed by formal government regulations; an interaction based on social guilt and an economic necessity; and a routine act filled with confusion and necessity.

Tipping is a social puzzle for the giver.

• How much tip do I leave?

• Who should be tipped?

• Why should I tip?

Service employees and employers also struggle with questions like:

• Why should I pay taxes on a gift?

• Why should tips reduce my employer’s responsibility to pay a fair wage?

• Why should I care how much tips my employees make?

7

The Complete Guide to Tips & Gratuities This book will help demystify the history, psychology and economics behind tipping so you can understand why this is such a hot topic for politicians, businesspeople and service personnel. You’ll learn about tipping attitudes, how to increase your tips, and why you should report your tip income. Separate chapters will address wage and tip-income laws that affect tip-earning employees and how employers can comply.

I’d encourage you to read the boring chapters of this book to learn the whys behind earning tips. Our goal in detailing the story and science of tipping is to provide valuable information to make tip-earners more productive and employers more proactive.

Who Should Read This Book

Anyone who regularly receives tips for services rendered:

• Waiter/Waitress

• Cocktail server

• Bartender

• Bus person

• Maitre d’

• Wine steward

• Coatroom attendant

• Valet parking attendant

• Manicurist

• Hairdresser

• Barber

• Shampooer

• Massage therapist

• Gardener

• Custodian

• Repair person

• Pet groomer

• Dog walker, pet sitter

• Musician

• Barista

• Bellmen

• Door attendant

• Room service waiter/waitress • Porters (train, ship)

• Cabin steward

• Bath steward

• Skycap

• Delivery person

• Drivers (cab, limo, etc.)

• Tour guide

8

Tips on Tipping

• Sleeping car attendant

• Mover

• Baby-sitter

• Cleaning person

• Mail carrier

• Garbage collector

• Usher

• Maid

• Concierge

• Casino dealer

• Keno runners

• Drink server

• Clowns

• Catering server

• Shoe shiner

• Caddy

• Trainer

• Locker room attendant

• Restroom attendant

• Parking attendant

• Grocery bagger

• And more…

• Tow truck operator

Anyone who hires and/or supervises tip earners and owners and managers of:

• Hotels and motels

• Spas and resorts

• Restaurants and bars

• Hair salons, barbershops and nail salons

• Home and garden maintenance and cleaning services May you discover the key to serving your customers with pride and reap the rewards daily.

9

The Complete Guide to Tips & Gratuities

Tip: A small sum of money given to someone

for performing a service; a gratuity.

10

C h a p t e r

1

What Is a Tip?

The dictionary defines a tip as a gift of money for a service, specifically an amount above what is owed. Also know as a gratuity.

But that hardly covers the true definition of a tip which encompasses:

1. A loosely regulated multi-billion-dollar economy.1

2. An economic necessity for millions of service industry employees worldwide.

3. A practice based on historical customs, social norms, class status and psychological distress.

Tips Are Wages

Tips, like your hourly wage, are taxable income. The Internal Revenue Service and the federal court system have spent countless hours instituting tip laws and rulings that target tip-earners and the employers who hire them. The IRS estimates that approximately $500 million in tips go unreported annually.2 In Chapter 8— Reporting Your Tips to the IRS and Chapter 10—

Employers and Tips, we’ll discuss various tax rules and regulations that tip earners and employers should understand.

11

The Complete Guide to Tips & Gratuities Tips Are Controversial

Although anti-tipping laws are no longer on the books, many people would like to do away with tipping entirely. Attitudes toward tipping range from that’s just the way it is to the Tipping is Stupid anti-tipping Web site.

Why not just pay everyone equitably and forget tipping? This question arises periodically when government entities review minimum wage or living wage laws. Politicians, business leaders and economists cannot agree on what would be fair for employers, employees and their