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MINIMUM WAGE IN A SERVICE ECONOMY
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senders
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Quoted Text
New "tipping" rules for 2014: Are you ready?
by the JMBM Global Hospitality Group®
For the most recent update on this topic, click here

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of http://www.HotelLawBlog.com
10 November 2013

Hotel Lawyer with some tips for employers on handling tipping -- the new IRS Rules.

Employer practices with tips at hotels and restaurants have spawned a lot of employee discontent, class actions and other litigation. Some employers have withheld all or a portion of employee tips to cover administrative costs and others have redistributed tips amongst employees, some of whom (like bus staff and kitchen crews) have no opportunity to earn tips. Even the IRS has gotten into the game by adopting new rules that go into effect in January 2014.

The latest development centers around the common practice for restaurants, hotels, and others in the hospitality industry to impose "mandatory gratuities" to large parties of patrons. (We're all familiar with those menus that read, "A gratuity of 18% will be charged for parties over 6.") While there may be legitimate reasons for this practice, the potential liability for mishandling automatic gratuities is significant, and about to get much bigger.

Plaintiffs have been fairly successful in arguing that such mandatory gratuities or service charges are compensation for employees, all of which must be paid to the employees, which may not be distributed to non-tipable employees, and are probably subject to employer reporting and withholding taxes, and are part of employees' regular rates of pay for overtime calculation purposes.

But now the IRS is promulgating some rules that go into effect in 2014, and all employers should pay attention. My partner, hospitality employment lawyer Travis Gemoets, gives us the full story.

Change in IRS Rules on "Automatic Tipping"
Raises a red flag for hotels & restaurants

by
Travis Gemoets

One of the many new laws going into effect in 2014 will require hotels, restaurants and other employers in the hospitality industry to change their current practice when employees are paid "automatic" tips charged to large groups of patrons. This ruling will not only effect tax withholding, but also require employers to make additional overtime payments to the employees, above and beyond the automatic tip charged to the customer.
Current law requires employees to report their monthly cash "tips" (provided they received $20 or more in the month) to their employer no later than 10 days after the end of the month. Employers are required by law to collect income and payroll tax on these tips as reported by the employee. Cash tips are defined to include tips received directly from customers by cash, credit card or debit card; tips collected and distributed to an employee by an employer; and tips received through a "tip sharing" agreement. The employer is not responsible to withhold employee payroll taxes on unreported tips until a notice and demand is made from the IRS.

The new Rules for 2014

But a new obligation goes into effect on January 1, 2014, affecting all payments made after 2013. The IRS recently issued Rev. Rul. 2012-18 (the "Ruling") to address an employer's tax withholding and reporting of "mandatory tips." Mandatory tips are commonly imposed by restaurants for large parties, and often the menu itself will advise patrons that "an 18 % gratuity will automatically be applied on parties of 6 or more."

Unlike tips that subject the employer to tax withholding and reporting obligations only to the extent disclosed by the employee, the Ruling clarifies that automatic gratuities are not "tips" under the law, but rather service charge wages. It is the employer's responsibility to monitor and track all service charge wages, including the obligation to withhold on these wages and report them to the IRS. The employee's monthly tip reporting obligations simply don't apply to these mandatory tips/service charges.

Tips vs. Wages

The Ruling states whether a payment is a tip or a service charge wage is a factual determination, but absent one of the following criteria the payment likely is characterized as a wage (rather than a tip): (i) the customer's payment must be made free from compulsion; (ii) the customer must have the unrestricted right to determine the amount; (iii) the payment should not be the subject of negotiation or dictated by employer policy; and (iv) generally, the customer has the right to determine who receives the payment.

The Ruling gives an example where a restaurant imposes a mandatory 18 percent charge for parties of six or more. In this instance, the customer is not free to pay more or less than the mandatory amount. The Ruling concludes the amount is a "service charge" and thus a "wage" for federal tax withholding and reporting purposes, provided the restaurant distributes the 18 percent charge to employees. Conversely, if the restaurant merely includes sample tip amounts on the bill, and the tip line is left blank, the amount the customer adds to the bill is considered a "tip" for federal tax purposes.

Other legal consequences of payments being "wages"

But the tax consequence is only one facet on how the Ruling will affect employers in the Hospitality industry. Once the "tip" is designated as a "mandatory tip", it becomes part of the employee's wages paid by the employer. This will affect the employee's rate of pay since, as wages, mandatory tips must be included into the regular rate of pay for hourly employees unless a basis for exclusion can be found in the Fair Labor Standards Act (the "FLSA").

If these mandatory tip amounts are not incorporated into the employee's hourly rate pursuant to formulas set forth in the FLSA, the employee's overtime wages will be calculated incorrectly, resulting in an underpayment of wages to the employee. And, to make matters worse, the Ruling may be new, but the obligations under the FLSA are not. We are seeing an increase in class actions alleging the improper failure to include service charges and "mandatory gratuities" into the calculation of employees' regular rate of pay.

Moreover, the US Department of Labor ("DOL") is currently targeting the restaurant industry and we are seeing an increased numbers of investigations across the United States. For these reason, failure to comply with the Ruling may subject a restaurant employer to intense scrutiny not only by the IRS, but also by the DOL and plaintiffs' attorneys.

The federal investigation or class action lawsuit may expand beyond the scope of the Ruling into many wage and hour areas, including minimum wage and overtime classification, and the penalties for any underpayment can include the amount of the unpaid wages, an equal amount in liquidated damages, plus interest and attorneys' fees. State laws pertaining to the non-payment of wages can compound the employer's liability.

What should employers do?

The Ruling highlights the significant risks facing any business that has been treating "automatic gratuities" as tips rather than wages. The New York Times recently reported that a number of restaurants are dropping mandatory tips and service charges. Some are increasing the prices of food to compensate.

In any event, employers should review their reporting practices and payroll calculations regarding mandatory tips and/or service charges. A discussion with qualified legal counsel may be warranted, since the requirements in this area are very complicated, and certain exemptions set forth in the FLSA may apply.


WHO'S FAIR SHARE???? only the fu(king taxable kind....show me the $$ trail....it certainly doesn't lead to the employee
it just gives the power to another task master......

industrial revolution to a service revolution

what's your value????


...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......

The replacement of morality and conscience with law produces a deadly paradox.


STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS

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senders
December 30, 2013, 5:43am Report to Moderator
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CASH IS STILL KING.... a paycheck with increased wages increases the tax burden....

Quoted Text
The current minimum wage in New York is $7.25 per hour, which is the federal minimum wage. However, the NYS Legislature has passed legislation which will increase the minimum wage from $7.25 per hour to $9.00 per hour over three years, beginning with:

$8.00 on December 31, 2013
$8.75 on December 31, 2014
$9.00 on December 31, 2015
The legislation is included in the new budget which was approved on March 29, 2013.

Increases for tipped workers are not included. The current minimum wage in NY for workers who receive tips is currently $4.90 per hour for resort hotel workers, $5 per hour for food service workers, $5.50 for car wash workers, and $5.65 per hour for other service employees.

If tips aren't sufficient to reach minimum wage, the employer is required to pay the employee minimum wage. However, for tipped workers, the minimum wage will remain at $7.25 an hour for now. Reports indicate that an increased will be addressed at a later date.


$1.00 cash is worth $3.00 as compared to $1.00 in a government regulated payroll check.....

how about those regulations? are you feelin' it?????


...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......

The replacement of morality and conscience with law produces a deadly paradox.


STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS

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Quoted Text
Question: What is the Minimum Wage?
Answer: The minimum wage is the hourly rate employers are required to pay employees. The minimum wage in the U.S. is set by federal law. State laws may provide for a minimum wage that is higher than the federal rate. Nineteen states currently have a minimum wage that is higher than the federal level.
Most hourly employees will be guaranteed to be paid at least the federal minimum wage which is $7.25 per hour or the state minimum wage if it is higher.

When Employees Can be Paid Less Than the Minimum Wage

Employees who are paid hourly cannot be paid less than the minimum wage unless they are in one of the categories of workers who are exempt from being paid minimum wage or who receive tips, because tips are calculated in the pay rate for the employees who receive them.

Minimum Wage Increases

In order for the minimum wage to go up, either the federal government or state legislature must pass a law which stipulates a change in the minimum wage. The last time the federal minimum wage was increased was in 2009. However, some states have increased minimum wage since then, including ten states in January, 2013.

There is legislation in Congress that would increase the minimum wage. The Fair Minimum Wage Act of 2013, if passed by Congress, would increase the minimum wage to:

$8.20 an hour, three months after the legislation is passed
$9.15 an hour, one year after the legislation is passed
10.10 an hour, two years after the legislation is passed
Starting the third year, an annual increase based on the Consumer Price Index
The legislation would also increase the hourly rate tipped workers get by 85 cents per hour per year from the current $2.13 per hour until it reaches 70% of the regular minimum wage.


...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......

The replacement of morality and conscience with law produces a deadly paradox.


STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS

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GrahamBonnet
December 30, 2013, 11:49am Report to Moderator

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ISnt there a local case revolving around tipping and such?


"While Foreign Terrorists were plotting to murder and maim using homemade bombs in Boston, Democrap officials in Washington DC, Albany and here were busy watching ME and other law abiding American Citizens who are gun owners and taxpayers, in an effort to blame the nation's lack of security on US so that they could have a political scapegoat."
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Box A Rox
December 30, 2013, 12:03pm Report to Moderator

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Quoted from GrahamBonnet
ISnt there a local case revolving around tipping and such?


"ISnt"???

Kinda like "Will The State Of Georgia Is Turning Blue?"  



The modern conservative is engaged in one of man's oldest exercises in moral
philosophy; that is, the search for a superior moral justification for selfishness.

John Kenneth Galbraith

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bumblethru
December 30, 2013, 1:07pm Report to Moderator
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Quoted from GrahamBonnet
ISnt there a local case revolving around tipping and such?


YUP.....


When the INSANE are running the ASYLUM
In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. -- Friedrich Nietzsche


“How fortunate for those in power that people never think.”
Adolph Hitler
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December 30, 2013, 1:34pm Report to Moderator
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Glen Sanders?
Mallozzis?


...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......

The replacement of morality and conscience with law produces a deadly paradox.


STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS

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Albany

A New York City attorney who has won settlements from some of the biggest names in the restaurant business is now representing a former waiter for the local Mallozzi Group who claims the restaurant company kept more than $1 million in tips intended for banquet waitstaff.

The server, Ryan Picard, alleges the Mallozzi Group collected a 20 percent "service personnel charge" on banquet contracts but gave none of it to him and more than 100 other servers.

The suit, filed at the end of March in Albany County Supreme Court, cites a 2008 state Court of Appeals decision in the case Samiento v. World Yacht, which ruled that any "charge purported to be a gratuity" — and, importantly, charges that customers believe will go to staff — cannot be kept by the company.


...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......

The replacement of morality and conscience with law produces a deadly paradox.


STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS

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bumblethru
December 30, 2013, 3:18pm Report to Moderator
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How Government Policies Hurt Low-Wage Workers


Dr. Ron Paul

Fast-food workers across the county have recently held a number of high profile protests to agitate for higher wages. These protests have been accompanied by efforts to increase the wages mandated by state and local minimum wage laws, as well as a renewed push in some states and localities to pass “living wage” laws. President Obama has proposed raising the federal minimum wage to ten dollars an hour.

Raising minimum wages by government decree appeals to those who do not understand economics. This appeal is especially strong during times of stagnant wages and increased economic inequality. But raising the minimum wage actually harms those at the bottom of the income ladder. Basic economic theory teaches that when the price of a good increases, demand for that good decreases. Raising the minimum wage increases the price of labor, thus decreasing the demand for labor. So an increased minimum wage will lead to hiring freezes and layoffs. Unskilled and inexperienced workers are the ones most often deprived of employment opportunities by increases in the minimum wage.

Minimum wage laws are not the only example of government policies that hurt those at the bottom of the income scale. Many regulations that are promoted as necessary to “rein in” large corporations actually hurt small businesses. Because these small businesses operate on a much narrower profit margin, they cannot as easily absorb the costs of complying with the regulations as large corporations. These regulations can also inhibit lower income individuals from starting their own businesses. Thus, government regulations can reduce the demand for wage-labor, while increasing the supply of labor, which further reduces wages.



Perhaps the most significant harm to low-wage earners is caused by the inflationist polices of the Federal Reserve. Since its creation one hundred years ago this month, the Federal Reserve’s policies have caused the dollar to lose over 95 percent of its purchasing power—that’s right, today you need $23.70 to buy what one dollar bought in 1913! Who do you think suffers the most from this loss of purchasing power—Warren Buffet or his secretary?

It is not just that higher incomes can afford the higher prices caused by Federal Reserve. The system is set up in a way that disadvantages those at the bottom of the income scale. When the Federal Reserve creates money, those well-connected with the political and financial elites receive the newly-created money first, before general price increases have spread through the economy. And most fast-food employees do not number among the well-connected.

It is not a coincidence that economic inequality has increased in recent years, as the Federal Reserve has engaged in unprecedented money creation and bailouts of big banks and Wall Street financial firms. As billionaire investor Donald Trump has said, the Federal Reserve’s quantitative easing policies are a great deal for “people like me.” And former Federal Reserve official Andrew Huszar has called QE "the greatest backdoor Wall Street bailout of all time.”

Many so-called champions of economic equality and fairness for the working class are preparing to confirm Janet Yellen as next Chairman of the Federal Reserve. Yet Yellen is committed to continuing and even expanding, the upward redistributionist polices of her predecessors. Washington could use more sound economic thinking and less demagoguery.

By increasing unemployment, government policies like minimum wage laws only worsen inequality. Those who are genuinely concerned about increasing the well-being of all Americans should support repeal of all laws, regulations, and taxes that inhibit job creation and economic mobility. Congress should also end the most regressive of all taxes, the inflation tax, by ending the Federal Reserve.


When the INSANE are running the ASYLUM
In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. -- Friedrich Nietzsche


“How fortunate for those in power that people never think.”
Adolph Hitler
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