at a lot of places tips are split between front and back of house and those tips are based on the price of the meal, not the “tip” that was given. This results in many servers losing money and having to pay coworkers out of their own pocket on big groups or expensive bills that either don’t tip at all or only tip something like 10%.
I’m not advocating for this system at all, I just wanted to share some more info on how/why tipping works the way it does (in the US at least).
It’s a tip pool. So for instance I serve a meal to a couple. The meal is $50. They tip 10%. That split means I pay (for instance) the bartender out of the $5 tip $2.50. If I get another table that orders drinks and tips nothing I end up splitting nothing. But if I work with 4 other back of house people and they each get an equal percentage of that $5 then I get a dollar. But then that dollar is taxed because tips are taxed. If the company has a policy for shares tips pooling I could legitimately make $100 in tips and not receive $100 in tips. Technically that would be receiving negative tips because what is earned vs what is paid out is so drastically different.
In addition I’ve experienced back of house workers (cooks) getting paid out of the tip pool but the brunt of tax on the tips is not paid by them. This is absolutely tax fraud. But I’d also argue that tip pools are a form of wage theft and companies that engage in one are way more likely to engage in the other.
That isn’t negative tips. The lowest you can make in tips is $0. Even when tip pooling, the lowest you can make is $0, which requires no tips what so ever to have been given. There is no 100% tax rate, and you are at no point ever paying into the tip pool out of your own pocket.
I understand what you’re saying. But for a person who is now down from $5 to $2.50 to a $100 that is then taxed you’re effectively making less money than you earned. That’s why you can have negative net even while making take home pay.
But think about what might happen if the bill is paid incorrectly in cash. The company will absolutely take cash tips to compensate in the event that you or someone else messed up when counting the cash or giving change or whatever. With tip pools it’s unlikely. But it has happened.
Apparently Federal Law sort invalidates the legality of a tip pool altogether because the tip only counts as a tip if the person who tips determines who the tip is given to and how much and it’s non compulsory. But a lot of places ignore that as well.
It’s technically tax fraud, but yes. You could be. Back of house staff can include managers, cooks and dish washers, and even the hostess. Those people aren’t paid the $2.75 to $3.75 that the wait staff are paid. They’re considered hourly employees and they fall under different pay requirements under the law. A business that doesn’t augment the amount of pay for wait staff not making the federal minimum wage ($7.25) an hour in tips, that business is committing wage theft. To then be paying non-wait staff out of the wait staff tips is illegal as part of the wage theft. But since the company is already committing wage theft there’s no reason not to commit tax fraud to cover up the wage theft.
at a lot of places tips are split between front and back of house and those tips are based on the price of the meal, not the “tip” that was given. This results in many servers losing money and having to pay coworkers out of their own pocket on big groups or expensive bills that either don’t tip at all or only tip something like 10%.
I’m not advocating for this system at all, I just wanted to share some more info on how/why tipping works the way it does (in the US at least).
What percentage tip results in negative money?
It’s a tip pool. So for instance I serve a meal to a couple. The meal is $50. They tip 10%. That split means I pay (for instance) the bartender out of the $5 tip $2.50. If I get another table that orders drinks and tips nothing I end up splitting nothing. But if I work with 4 other back of house people and they each get an equal percentage of that $5 then I get a dollar. But then that dollar is taxed because tips are taxed. If the company has a policy for shares tips pooling I could legitimately make $100 in tips and not receive $100 in tips. Technically that would be receiving negative tips because what is earned vs what is paid out is so drastically different.
In addition I’ve experienced back of house workers (cooks) getting paid out of the tip pool but the brunt of tax on the tips is not paid by them. This is absolutely tax fraud. But I’d also argue that tip pools are a form of wage theft and companies that engage in one are way more likely to engage in the other.
That isn’t negative tips. The lowest you can make in tips is $0. Even when tip pooling, the lowest you can make is $0, which requires no tips what so ever to have been given. There is no 100% tax rate, and you are at no point ever paying into the tip pool out of your own pocket.
I understand what you’re saying. But for a person who is now down from $5 to $2.50 to a $100 that is then taxed you’re effectively making less money than you earned. That’s why you can have negative net even while making take home pay.
But think about what might happen if the bill is paid incorrectly in cash. The company will absolutely take cash tips to compensate in the event that you or someone else messed up when counting the cash or giving change or whatever. With tip pools it’s unlikely. But it has happened.
Wait, you’re taxed on money you didn’t earn?
Apparently Federal Law sort invalidates the legality of a tip pool altogether because the tip only counts as a tip if the person who tips determines who the tip is given to and how much and it’s non compulsory. But a lot of places ignore that as well.
https://www.nolo.com/legal-encyclopedia/state-laws-tipped-employees.html
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It’s technically tax fraud, but yes. You could be. Back of house staff can include managers, cooks and dish washers, and even the hostess. Those people aren’t paid the $2.75 to $3.75 that the wait staff are paid. They’re considered hourly employees and they fall under different pay requirements under the law. A business that doesn’t augment the amount of pay for wait staff not making the federal minimum wage ($7.25) an hour in tips, that business is committing wage theft. To then be paying non-wait staff out of the wait staff tips is illegal as part of the wage theft. But since the company is already committing wage theft there’s no reason not to commit tax fraud to cover up the wage theft.
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Please read the above thread because I recognize that it is illegal, but so are tax fraud and wage theft.
I don’t think you know how numbers work. Why would they be paying coworkers out of a tip that never existed?