In general, business owners and other professionals want to keep track of all their income. This includes moderate and small amounts. However, does it also include tracking incoming restaurant tips if you’re working in the food industry and employ people like wait staff, bartenders, bussers and hosts who are earning tips?
Restaurant tips fall into a category that may feel gray or uncertain to many people — even owners who are accustomed to tracking everything else. Questions often arise, such as:
- Because tips are not mandatory, are they considered part of my employee’s income?
- If our team shares tips among themselves, is the eatery responsible for keeping track of those amounts?
- If someone gives someone on my staff a very substantial tip above 15 percent, is it up to the business to pay anything in taxes?
These are all great questions. To help you understand tip reporting requirements and recommendations, we have a few thoughts on the topic.
Set a Precedent So You Know Your Employees’ Tip Amounts
The basic answer to whether or not to keep track of your employees’ tips is “yes.” This requires an open line of communication between you and your personnel. Transparency is important so you understand how much your employees are actually bringing home.
Some waiters and bartenders might be hesitant to reveal their tips, thinking it could affect their regular pay. Explain to them that you are legally required to know how much everyone on your payroll is making, including their tip amounts. Then, use software or a spreadsheet to track those amounts to the penny.
If you suspect that someone on your team is not being honest, have a conversation immediately. The business could be penalized if you aren’t in-the-know about what’s happening in terms of monetary exchanges in your restaurant, café, coffee shop, bar or other type of restaurant.
Stay Up-to-Date on Tip Tracking and Work With the Pros
At busy times of the week or year, it can be tough to stay on top of gathering tip data from everyone in your eatery. Make it a part of your weekly task, or assign it to someone else. Do not allow yourself to get behind in this duty.
If you aren’t well-versed in what the IRS requires in terms of tips and other trackable income and expenses, consider hiring pros who understand the ins and outs of tip tracking. Bookkeeping services are available to help you streamline your process, and to keep you compliant. The last thing you want is to gain unwanted attention and end up in a messy audit situation.
By keeping track of everyone’s tips in your food service business, you’ll also know more about the true income of your employees. This can be helpful when hiring new people, as well as maintaining a basic understanding of your unique business model.