How To Make More Tips As A Waitress – This is the US version of this post. For information on tips and scholarships in Canada, click here.
In the restaurant industry, tips are more than what you associate with the homespun tip jar at the cash register—they’re the primary source of income for tipped employees. Tips are taxable income with specific responsibilities for employees and employers.
How To Make More Tips As A Waitress
In its research, the National Restaurant Association (NRA) states that restaurants are the second largest private sector employers in the United States:
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According to PayScale’s 2012-2013 Tipping Study, tips can account for up to 60% of a service worker’s income.
PayScale’s Tipping Study also provides a table of tipped employees ranked by income from tips. Roles in the restaurant industry make up half of this list, depending on the nature of the restaurant establishment.
Tips aren’t just income — they’re taxable income. This means that tipped employees are responsible for reporting tips to their employers. In turn, employers must accurately account for tips and withholding amounts in wages.
While this may seem straightforward, the complexities of laws and responsibilities make managing this process very complex. In order to provide a comprehensive overview, we thought it would make sense to start with some basic definitions as outlined in Fact Sheet #15: Terminated Workers Under the Fair Labor Standards Act (FLSA):
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A tip (gratuity) — A tip is an amount paid in addition to service rendered. They are usually given in cash (direct tip) or when paying the bill via credit card (indirect tips).
Although tips are considered property of the employee, under FLSA guidelines, employers can calculate a percentage of tips earned by a tipped employee to meet the federal minimum wage requirement of $7.25 an hour.
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A tip pool or tip pooling (tip sharing) is when there is an arrangement between tipped employees to share tips. For example, servers, bar servers, greeters, and bussers in a restaurant may pool their tips.
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As more people use credit cards as cash, it has become common to include tips as part of the same transaction. However, for each of these transactions, a transaction fee is charged to the employer by the credit card company.
If an employee’s compensation is based solely on tips, without cash wages, the employer cannot take any tip credit and a deduction is made based on the full minimum wage.
Overtime is calculated based on the full federal and or state minimum wage. The FLSA specifies a tip credit of $3.02 for overtime. This credit should be taken from the overtime pay rate, not the regular pay rate.
In addition to federal minimum wage laws, employers must meet minimum wage requirements set by the states, territories, and counties in which they do business. (In fact, workers are entitled to a higher rate, whether federal, state, or local.) Of course, it wouldn’t be American tax law if it didn’t have more than 31 explanatory flavors.
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Given the amount of detail required to get to this point in this post, it’s no surprise that articles such as Upstart Business Journal’s Four Common Mistakes outline the following mistakes:
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The IRS requires tipped employees to record and report the cash value of non-cash tips such as sports or movie tickets and $20 of additional income each month.
Since the process is so user-friendly, it’s no surprise that the struggle for compliance is ongoing. Or employees often choose the lure of instant gratification over the long-term rewards of doing the right thing. In an effort to make the reporting process more palatable, the IRS produced a video called The Jill & Jason Show.
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With the proliferation of smartphones, pen and paper are being replaced with the tap of a finger, thanks to apps like Just The Tips, ServerLife, Tip Counter, Tip Bucket, Tip Jar, TipMe, Tip$ee and Tip Sheet.
The IRS states that an employer must ensure that the minimum gross tip income reported by employees in any pay period equals 8% of your restaurant’s gross receipts for that period. The reporting process is done quarterly, by payroll, using Form 941.
If the total amount reported is less than 8%, the employer must cover the difference through the gross receipt method, the hourly worked method, or a good faith agreement.
In the article What Employers Need to Know About Tip Reporting, the Restaurant Resource Group explains three allocation methods:
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Employers who knowingly misreport official income can be fined up to $10,000, according to Workplace Fairness. Repeat violations can result in fines of up to $1,000 each. In extreme cases, criminal penalties may result.
Employers can claim a lower rate of up to 2% by submitting a petition to the IRS:
In 1993, the IRS created several compliance programs to help restaurants and tip workers comply with reporting requirements through education rather than enforcement:
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Despite the fact that tips are the sole property of the employee, employers, such as restaurants, still bear the primary burden of accurately reporting tip earnings each quarter. If a discrepancy or inaccuracy is found, the first place the investigating agency looks is wages.
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As employers, restaurants can improve compliance by contacting and training employees, services third-party experts on relevant employment and tax law, and streamlining processes by using accounting and payroll technologies.
Disclaimer: While every care is taken to ensure the accuracy of this content, relevant laws are constantly being reviewed. It is best practice to regularly consult with experienced professionals on these topics. Any errors or omissions brought to our attention will be corrected as soon as possible.
A former content manager, Michelle loved simplifying complex payroll topics and creating small business and partner content. When not at the keyboard, she enjoys chocolate, running, and quality television (not always in that order). Audrey Parisi, a struggling college student, works weekends at Las Brisas Steakhouse. On Friday nights, Parisi arrives hoping to be reassigned to a bar on the patio where the men hang out.
“I get back a quarter of what the bartenders make, and I make my own money as a server,” Parisi said. “It really depends on the type of people that come that night.”
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It is known that women make only 79 cents for every dollar that men earn, but this statistic does not apply to the hospitality industry.
That is not to say that gender discrimination is not there. On the contrary, its presence will help the income of female restaurant workers. A Cornell University study shows that larger breast size, pink hair and relative youth correlate with higher tips for maids.
Chelsea Wikle, 24, who has worked at Ruby Tequila’s Mexican Kitchen for five years, says women give better tips because men are more interested in paying female servers to flirt and show their dominance.
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A study published in the Journal of Hospitality & Tourism Research shows that waitresses who wear red tend to get more tips. Image from Canva.com.
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“It’s always consistent that men make more money than women,” he said. “I think male clients use that to their advantage more than a female.”
In the same Cornell University study, male customers used tips to demonstrate their status and wealth to servers of the opposite sex more often than female customers.
Considering the majority of male customers are heterosexual, waitresses should receive higher tips. Research also shows that male customers give larger tips to waitresses wearing a red dress or red lipstick.
At Las Brisas, an upscale steakhouse in Lubbock, Parisi said she doesn’t see many sleazy men, so she doesn’t know if they tend to depend on attractiveness.
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Josh Nucker works as a server, bartender, and sometimes manager at Ruby Tequilas on the Texas Tech campus. She believes women will definitely get better tips from customers.
“Performance is always important,” Nucker said. “However, people tend to be more lenient and accommodating to beautiful people. I think this has to do with some psychological reasons.
A Cornell study confirms that women give more advice. Servers earn more if they are attractive women, better service providers, and higher self-monitors.
What if you’re a hot girl but have a bad personality or do something embarrassing like spill a drink on a customer?
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Patrick Andes, Red Robin’s shift supervisor, said women can pull this off by apologizing.
“I believe that tips depend on both the employee’s performance and gender,” Andes said. “If you do a bad job, but you’re a
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