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Published on:

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.

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Published on:

23 April 2012

Hotel Lawyer with some insights on the recent California Supreme Court Case, Brinker v. Superior Court

Last week, the California Supreme Court gave employers a “break” by resolving issues in a case that has been pending since 2008 — issues that have cost California employers more than a billion dollars in settling and defending class action lawsuits.

At issue in Brinker Restaurant Corporation v. Superior Court was whether California employers must ensure that their employees actually take their meal and rest periods or merely make them available. To the collective relief of California employers, the court found that an employer must only provide meal and rest periods to its employees, leaving the employees free to use the period for whatever purpose they desire. The employer is not obligated to ensure no work is performed during the period.

My partner, labor and employment lawyer Travis Gemoets, offers some practical pointers to employers based on the Brinker decision, in his article below.

While it is always great to share positive news with our friends in the hospitality industry, the Brinker decision also reminds us of the critical need for clear, sound employee policies, and the importance of providing regular, ongoing education to supervisors who implement those policies.

JMBM’s Global Hospitality Group® includes labor and employment lawyers with deep experience in the hospitality industry, providing clients with practical advice and planning, as well as aggressive advocacy. If you would like to discuss how our industry-specific prevention and preparedness strategies can help you avoid or minimize costly employment claims, or how the Brinker decision impacts your hotel operation, please contact me or my partner, Travis Gemoets.

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