IRS changes rule on automatic gratutity

[Boopuff]

I wonder how this ruling will affect dining at WDW. They add automatic gratuity onto parties of 6 or more. In a nutshell;
'A new ruling set by the Internal Revenue Service in 2012 became active this January — and it classifies an automatic gratuity as a non-tip wage.'

I wonder if Disney will abide by this.

 

[Allison]

Why wouldn't they and didn't this go into effect in 2014?

 

[OKW Lover]

I wonder what the distinction is? Not sure just what a "non-tip wage" means. Would this have an impact on the server or the company?

 

[sharonabe]

There is already an automatic tip on parties of 6 or more at Disney restaurants.

 

[cigar95]

As even the "automatic" gratuities are not truly mandatory at WDW if the diner objects and speaks with a manager, I suspect the company will continue to treat these gratuities according to whatever is most beneficial to the company.

 

[supersnoop]

I wonder what the distinction is? Not sure just what a "non-tip wage" means. Would this have an impact on the server or the company?

"Tip-wage" is $2.13/hour. "Non-tip wage" positions would be subject to minimum wage laws.

 

[HopperFan]

"Tip-wage" is $2.13/hour. "Non-tip wage" positions would be subject to minimum wage laws.

Actually Florida is a State that requires employers to pay tipped workers above federal tipped minimum wage. The Florida minimum cash wage for Tipped Employees is $5.03. There is also a calculation on what final minimum pay should be with tips.

The ruling the OP brings up went live in 2014. What it means is that servers collecting auto-tip will no longer be carrying home that tip money as they have before. They categorize the auto tip as more a service charge. This money will be processed via their paycheck and therefore the required government taxes can be taken out. In the past this money would have to be claimed on their return and any taxes due paid at that time. It's all accounting. It's good for the IRS. For employer it's some extra work and SS contributions, but could be worth it if diners don't leave a tip as employer must still pay server to guarantee their end hourly pay is $8.05 an hour. It could make a difference to server depending on how they did their taxes, but if they reported all their tips then having already paid some taxes is a plus to me.

Since this is not new and Disney is still doing the automatic on parties of 6 or more, I guess they made their decision. Business as usual for the customers. Given Disney's clientele, I think this is probably in both Disney and server's best interest. For smaller restaurants this would not be a plus and I could see them dropping the requirement.

 

[OKW Lover]

"Tip-wage" is $2.13/hour. "Non-tip wage" positions would be subject to minimum wage laws.

Ahh, now I understand. So, Disney would have to pay them more and thus contribute more FICA on that.

 

[ChrisNY2]

I think this is why House of Blues at Disney Springs (which isn't Disney-owned) doesn't do an auto-gratuity on Tables in Wonderland uses.

 

[TheRustyScupper]

Tip-wage" is $2.13/hour.

1) Disney TIPPED POSITION wages are from $5.25/hr to $7.10/hr, excluding mandatory tips.
2) Some Examples:
. . . Restaurant SERVERS
. . . Resort Bell Services
. . . Bartenders

 

[DVC-Don]

We've got a restaurant near our NY home that went to no tips effective January 1. They increased the wages for cooks, bus boys/girls and servers and raised prices 18%.

 

[GaryDis]

Superficially, this change was a change in bookkeeping that has no effect on total taxes due.

In practice, at a minimum it typically means servers have to wait until next payday for their share of any mandatory service charge instead of getting it the same day. I've also seen reports that it complicates bookkeeping for the restaurants, enough so that many restaurants (but not Disney) have gone from mandatory service charges to suggested service charges to avoid the bookkeeping headache - which has the indirect effect that service people can be stiffed on a large table, which is really bad for them. I don't know why it would make the bookkeeping harder for the restaurants, since they're suppose to track employee tips regardless, but I'm willing to accept that at face value since I've never done that sort of bookkeeping.

Finally, for those servers working in restaurants that still have mandatory service charges, it makes it marginally more difficult for servers to cheat on taxes by not claiming all their income. They get no sympathy from me on that point.

 

[HopperFan]

Superficially, this change was a change in bookkeeping that has no effect on total taxes due..........

I don't know why it would make the bookkeeping harder for the restaurants, since they're suppose to track employee tips regardless, but I'm willing to accept that at face value since I've never done that sort of bookkeeping.

Finally, for those servers working in restaurants that still have mandatory service charges, it makes it marginally more difficult for servers to cheat on taxes by not claiming all their income. They get no sympathy from me on that point.

For a few reasons (and may be more) but lets face it most cash tips are not all turned in or accounted for. Now all of these auto-gratuities must not only be accounted for but flushed through your accounting system in more than a few steps. Every single employee, day and transaction will be different. It enters as a service charge but then converts to payroll. Before the server was 100% responsible for reporting these tips and paying their taxes. Now the restaurant must run these tips through the accounting system and into the payroll system where they are treated like all other pay. They will have all the taxes taken out of the employees check and it means these tips now cost the restaurant more money in tax matching for FICA and Medicare. This alone would be reason enough for many restaurants to drop the auto-gratuity. It is costing you accounting time and now actually a monetary cost that they can avoid by not making it automatic. The smaller the restaurant (in terms of ownership) the bigger the impact to profits.

 

[GaryDis]

Before the server was 100% responsible for reporting these tips and paying their taxes. Now the restaurant must run these tips through the accounting system and into the payroll system where they are treated like all other pay. They will have all the taxes taken out of the employees check and it means these tips now cost the restaurant more money in tax matching for FICA and Medicare.

To the extent they're now hit by previously unreported tips, yes; no sympathy there. But restaurants have always been responsible for FICA on reported tips.

 

[Disneytam]

We've got a restaurant near our NY home that went to no tips effective January 1. They increased the wages for cooks, bus boys/girls and servers and raised prices 18%.

That is probably because NY state just increased the min. wage for servers just went up from $5.00 an hour to $7.50 an hour. Some places are switching to no tipping and increasing prices to pay for the switch. A really nice wage for servers at places that will just increase meal costs since that will also raise their tips.