From what I’ve been told, servers in the US get taxed on the assumption that they make 15% in tips. Because of this, unless service is bad I will tip a minimum of 15% for OK service and 20% for good service. To ask for a 30% tip seems absolutely ridiculous to me.
In the U.K. servers are paid the same minimum wage as everyone else and there’s no expectation to tip and usually not even a suggested tip on receipts. Even if we do tip, 10% is generous here. Why are people so happy to tip so high in the US? I’m just curious as surely it would save the customer money if servers were paid a proper minimum wage and tipping wasn’t such a lucrative business.
The first paragraph of yours is not exactly true. The way it works is the IRS knows that despite the law that servers must declare and pay taxes on ALL of their tips, many servers do not. If a customer leaves a tip on a credit card, then the restaurant knows how much is tipped, but with cash tips, only what the server claims can actually be reported. A large number of servers under report their tips to avoid paying taxes on them. As a way to lessen this tax evasion, the IRS requires that restaurants report 8% of their sales as tips across their tipped employees. Basically, it means that when the restaurant reports the tips for the employees, it needs to equal at least 8% of the restaurant's sales.
The way it worked at the restaurant I served in (and I'm sure its's the same or similar for most places) was when we claimed our tips each night, it was programmed into the computer that if we reported less than 8% of our total sales in tips, it would flag it. The manager would then ask us if we were sure that was all the tips we had made. At that point, the server would either fess up that they had made more and the amount would be changed in the system or they'd say, "No, that's all I made," and that would be it. Nothing further happens unless the total tips reported by ALL employees for the entire restaurant through the month were less than 8% of total sales. At that point, the restaurant would have to allocate tips.
If a restaurant has to allocate tips because their employees did not report earning at least 8% in total sales as tips, then the restaurant will determine what the difference is in reported amount and the 8% and split it up among the tipped employees based on number of hours worked. To put it very simply, if the total sales for a month were $100,000, 8% or $8,000 would need to be reported in tips. If only $7,000 were reported, then $1,000 would need to be allocated. If there were 10 tipped employees that worked the same number of hours, each employee would be allocated $100 in tips for that month. That would then show up on the W2 in a box for allocated tips. If the employee has documentation that they did not earn that extra $100 in tips that month, then they are good and only pay taxes on what they reported. If they cannot prove their earnings, then they will pay tax on those allocated tips.
There was exactly one time when I was a server that at the end of the night the system flagged me for not reporting 8% in tips. That was the night that I had legitimately made $9 in tips after being stiffed on a large check. Nothing ever came of it because over the course of the month the reported tips for all servers still exceeded 8% of the restaurant's total sales. My manager said that she had never had to allocate tips before and as long as servers are properly reporting their tips, it's incredibly rare for a restaurant to need to do so. Even accounting for customers who don't tip/ tip low, servers are still generally averaging far more than 8% of total sales in tips.
It is federal law that those making tips are supposed to keep a written log of their daily tips. Most don't, but the purpose is it will help if this sort of situation ever arises. You are also prone to IRS audit if you report low amounts in tips since the IRS knows that most servers tend to earn far more than 8% of their sales in tips and again, many try to cheat the system by under reporting cash tips. The point is, as long as a server has these records, they will only ever pay tax on the amount of money they actually earn.
though I think they have protections in place for that now so you make at least minimum, don't they?
Yes, if what the server makes in tips + base pay averaged for the pay period per hour does not equal the higher of federal or state minimum wage, then the employer must make up the difference. Even if all customers tip nothing, a server is guaranteed to make minimum wage.