Celebrity chef, and ABC’s “The Chew’s” co-host, Mario Batali found himself in hot water earlier this year when over 1 thousand of his employees sued him and his business partner over tip skimming. After agreeing to pay employees $5.25 million, the lawsuit was settled.
Las Vegas has hundreds of hotels, and even more chefs. But any Las Vegas employer who employs workers that regularly receive tips should study the Batali case to keep out of their own hot water.
#1, tips are earned by employees and belong to employees. Management is not entitled to tips. However, employees who regularly receive tips, such as valets, waiters, and bartenders, can pool their tips. Tips cannot be pooled with employees who are management. Batali regularly took up to 5% of all tips earned by his employees for “wine research” and to replace broken glass. This is a No. No. No. No. Not acceptable.
#2, service charges aren’t tips, as such, an employer can pool and distribute these monies any way they choose. If Batali had used part of the service charges for “wine research,” the monies could have been allocated among tipped employees and management. Note: IRS Rev. Rul. 2012-18 gives guidance on determining when money a server receives is a service charge or a tip.
#3, tips are reportable. The IRS doesn’t play. Tips are wages. Furthermore, employees paid $20 or more in tips a month must report their tips to their employer on Form 4070 because those tips/wages are subject to FICA withholding.
#4, if the total tips reported to the employer during any payroll period are less than 8% (or an approved lower rate) of the employer’s gross receipts for that period, the employer can allocate the difference between the total tips reported by employees and 8% (or the approved lower rate) of the gross receipts, other than nonallocable receipts. The employee’s Form W-2, Box 8 will reflect any tips allocated.
The Las Vegas law office of Lagomarsino Law did not represent anyone involved in any cases that may be referenced above. This commentary is for educational purposes. If you would like to be represented by an attorney in our Las Vegas office, contact our office for a free confidential case review and receive a response within 24 hours. Call Toll Free 866-414-0400.