1099 Tax Software Blog

The last episode of Season 4 for Kitchen Nightmares featured Amy’s Baking Company in Scottsdale, Arizona.  It was a cringworthy Kitchen Nightmare as owners Amy and Samy Bouzaglo did everything that you would NOT expect a restaurant owner to do including taking tips from wait staff.

Their actions beg the question: Is it legal for an employer to take tips from an employee and in turn pay them a wage?  The answer is no.  See Fact Sheet #15 from the Department of Labor at this link:

http://www.dol.gov/whd/regs/compliance/whdfs15.pdf

To quote:

“Retention of Tips: A tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit. The Fair Labor Standards Act (FLSA) prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer. For example, even where a tipped employee receives at least [minimum wage] directly from the employer, the employee may not be required to turn over his or her tips to the employer.”

In the case of Amy’s Baking Company, the owners were absolutely wrong in taking the tips from employees.  They stated that they were justified in taking the tips for two (2) reasons:

1. They earned it by helping wait the tables.  Let’s say the owner truly does work along side of the service employees.  Can they at least share in the tips and take a percentage?  The answer is no.

To quote again:

“The FLSA prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer.”

2. They pay minimum wage.  Again no.

Tips belong to the employee, not the employer.  The owners of Amys Baking Company were completely out of line both on the show and on facebook when they said:

“We do not, nor have we ever stolen or taken any of our servers ,waitresses, or waiters tips at Amy’s Baking Company.

We pay our staff members anywhere between $8.00 to $14.00 per hour to ensure that at the end of the week regardless of it being busy or not, that they go home with money and a well paid paycheck. As do many other restaurants.

They are aware of this when they are hired.

I would challenge any of our employees past or present to come forward with proof that we have ever done such a horrible thing.”

An employer can’t take an employees tips.  They can use the tip as a credit against the employer’s minimum wage obligation, but they can’t take it from the employee.

An employer who operates a large food or beverage establishment must file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips.  It is the employer’s responsibility of large food or beverage statements to track employee tip income and report that money to the IRS.

 About 1099FIRE:

1099FIRE is dedicated to providing feature-rich IRS Form 8027 Software, Employer’s Annual Information Return of Tip Income and Allocated Tips. Import, print and eFile IRS Form 8027  the quick and easy way!

by

Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.