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IRS CHANGES THE RULE ON 18% MANDATORY GRATUITIES

Posted by Samuel A. Wong | Sep 22, 2013 | 0 Comments

 

The IRS has recently announced that the 18% mandatory gratuity policy for large party dining will no longer be categorized as a tip.  Since a “tip” is supposed to be something the customer leaves at their discretion, the compulsory 18% policies utilized by many restaurants today change the character of the money to a wage—not a tip.

This IRS first came up with the rule in 2012, and it was to take effect on January 1, 2013.  However, the IRS delayed the rule's effect until January 2014 in order to allow restaurants to catch-up and amend their policies.

What does this all mean?  More freedom for patrons, although, some would argue that adding the 18% automatically made it a bit more convenient for those times you're splitting a bill 9 ways.  For servers, it depends on whether or not the restaurant continues to utilize the policy or changes their ways altogether.  Some restaurants have found success with simply listing the tip amounts for 15%, 18%, and 20% intervals ensuring a decent gratuity left for their wait staff.

About the Author

Samuel A. Wong

Samuel A. Wong is a renowned Orange County trial lawyer and a Co-Founder of Aegis Law Firm. Mr. Wong has spent his entire career litigating employment related matters, including wrongful termination, discrimination, harassment, wage, disability and medical leave cases. Mr. Wong is also an expert ...

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