I’m having a problem with drivers severely under reporting their cash tips. I’ve read that some places automatically claim a certain percentage of their sales as tips.
First, is that a legal method to do it? And if so, what percentage should I be claiming? For some reason 8% sounds familiar, but I’m not sure.
Check with your accountant.
A lot depends on your operation. For instance, if you pay your drivers more than minimum wage and properly handle reimbursement for the use of private cars (if they don’t drive your car) and you do not have seating (actually less than 12 seats I think) you are exempt from reporting. The drivers still owe taxes, but you are relieved of the obligation to track and report tips. We were in that situation for years until the minimum went up.
Check with your accountant.
Our drivers make $6.00 hour in wages and drive my cars and burn my gas. Tips take them well above minimum. We report all CC tips and ask the drivers to report cash tips. Do they report them all? Who knows. I sure don’t. As long as the amount they are reporting puts them above minimum wage you are pretty safe.
Check with your accountant.
Drivers are also at $6.00 (at this store), we overcompensate for mileage (averaging 67 cents per mile), but the restaurant is 100 seats and full service. We are far from exempt from reporting.
For some reason most of the deliveries at this store are cash. I’m having drivers averaging 2 or 3 runs per hour and are coming up under minimum wage for what they are reporting (which is usually only a few dollars above their minimal CC tips.)
So I’m getting caught making up the difference on their paychecks and I really felt it on this payroll with the minimum wage increase.
Could they be telling the truth and just aren’t getting any cash tips? Possibly, but I think they all would have quit by now.
My drivers are required to report 8% of their gross sales.
I think they are spoofing you. What are the tips on CC sales and checks? The percentage is going to be similar. With 2-3 deliveries per hour, there is no way they are not making minimum. In our store 2-3 delis per hour would be 6-12 per hour in tips alone.
i have to agree with bodega here… They’re playing you. If your paying $6 per hour, and they are doing 2-3 deliveries per hour, They have to be making $12 an hour (at least). And that don’t include their reimbursement. Then there’s the occasional $5 tip which explodes the hourly wage.
In my store, the average tip is around $2.50-$3.00.
Whats the minimum wage where you are? Federal just jumped to $7.25 per hour.
Yes, I already know they are. That was the entire reason for my original post and question.
So back to the original question… I’d like to just automatically claim 10% of their sales as tips. That will take care of the problem for me. Looks like RobT is doing that (or at least 8%.) Anybody else?
Can you force a driver to make such a declaration?..The onus is on them to report so how can you get involved with this process?..
The IRS in the United States can, and often does, interpose itself into all sorts of business realtionships that it doesn’t make sense to be going on. They’ll hold our feet to the fire to get at an employee . . . often because businesses are bigger fish and easier (more vulnerable) prey.
Nick I am not sure you answered the question exactly…So are you saying the IRS can force a business to make a declaration on behalf of an employee?..
I think Nick’s point (correct me if I’m wrong) is that while it is the employee’s responsibility to declare their tips, the employer is held responsible for any under reporting.
Nice system, huh?
2008 Instruction 8027
Oops, edit: Here is the IRS form from last year: 2008 Form 8027
What Nick is trying to say is that the business will be held accountable regardless. There is nothing that says a business has to force an employee to declare any certain amount but if they don’t the business is at risk for punishment. Read between the lines.
If there is one thing the government is good at it is collecting money.
OK, thanks Brad. I’ve read that a few times but don’t exactly understand it.
That says I must allocate tips if “total tips” are less than 8% of the “establishment’s gross receipts”. That doesn’t seem to apply to my problem, I don’t think.
I’m guessing in the case of delco’s the driver’s tips should be 8% of the delivery receipts. That would make the most sense, so I’m sure it’s completely wrong.
Edit: You know, this topic and the questions that come up about delivery driver mileage reimbursement would make an interesting article for a magazine about the pizza industry… nowhere near as interesting as stories about bubble teas and energy drinks, but maybe worthy of some “filler” pages!?!
Right, that would make a ton of sense and would give an IRS procedure that would fix my problem.
The problem is that the 8027 instructions talk about summing all of the tips company wide, not how to deal with just one employee. Although, I think I may run with it anyway.
If a driver’s tips fall below 8% of their delivery receipts I will automatically claim 8%. If it is above 8%, I will claim the actual number.
If drivers grumble that they really are always under 8%, I may just take an HR path to that. If you can’t average 8% in tips, you must not be a very good driver and we probably should part company.
This looks “messy ugly”…It looks like the “Allocated Tip Program” only covers the employer…You are reporting tips so you do not get in trouble with the IRS but this is still not a declaration by your employees…That seems to be another issue all together…So just by you reporting 8% does not solve the minimum wage dilemma…
We were audited by the IRS and I tell you what it was one of the worst experiences of my life. From what we gathered (of course they don’t tell you) it was a random audit. None the less I am a records freak. We keep our books honest and I keep every shred of paper.
Our audit went with no changes and a few compliments. But I will say the tips were a HUGE aspect they looked at. We “did our best” to ensure employees were reporting tips but I will say it was not enough. Sure they appreciated the effort but helped clarify what was expected. The liability is that of the employer to make sure the employees are reporting.
With the help of the agent we found some resources. They can all be found at www.irs.gov
Publication 1872, 1244, 4070A and 4070
I copied their Tips on Tips (1872) and all employees must sign they have received it and understand it. It will clearly explain what you need to know.
Your safest bet is to demand 100% reporting.
I made a sheet combining 1244 , 4070 and 4070A (If you want a copy I can email it to ya)
It also includes tracking drivers mileage and reimbursment.
We thought it would be a pain in the rear to implement but the employees have complied. Every month I send out a reminder they must sign that federal law required 100% reporting. There is also reminders on their checks.
If you google restaurants where the IRS audited and found owners liable it is enough to put you out of business. I used to blow it off but after having been audited it is not negotiable at our store. The old we can’t police tips is not an acceptable excuse for the IRS.
I must say there was a huge relief to have a no change audit and a few compliments from them on our record keeping and that only wants me to do more.
My apologies, but I think it’s awesome that you’ve been audited!
So, how do you handle this?
I was told by an IRS agent (at a food show) that the correct/only way to reimburse for expenses w/o tracking actual expenses and have it not be considered a wage is to pay “per mile.” In other words, no percentage or per-delivery pay would be treated as a tax-exempt reimbursement. Do you pay per-mile, do you treat it as a taxable wage or something else?
Please, what did you learn about this during the audit… you lucky dog! :twisted:
At the time we were audited we did not keep mileage records. Just number of deliveries and compensation paid. This brought a whole additional day to our audit. They came out to one of our restaurants because they said our deliveries were probably less than 3 miles (both ways) as are most of the big chains. We had to laugh at this because one of our mottos is “we deliver where no one else will” So we gave them our delivery area and tickets from the past few days and they drove around and quickly came to the realization we were correct.
I believe the driver reimb. is about 58 cents or so…so if they are making less or equal per mile fine. If they are making over that they must report it as extra income.
So now we have it on our tip reporting sheet. They take their begin mileage when they clock in and they write down the ending mileage when they cash out. It has become habit so it is not a big deal. Sure every now and again they miss a day or two but overall they do it every day not to mention it puts the responsibility on the employee not the employer.
I keep all these sheets in big binders and every now and again just check the numbers. But the total is based on total compensation and mileage for a month.
Hindsight is 20/20. I am glad I was audited because the lesson was invaluable and I am sure most of the time where people get in trouble is they don’t have good record keeping in all kinds of areas. So from the get go our hands were clean. It was clear we wanted to be legite so they became helpful not harmful. I think had we had all kinds of red flags they would have dove in to “catch” us rather than help.
They were pretty nice folks by the end of it. (As much as you can be for working for the irs)