New legislation on food and beverage operations for 2014 will impact your business. As the leading provider of restaurant software and analytics, Avero wants to make sure you’re not setting yourself up for unnecessary penalties or missing out on opportunities to streamline your accounting practices.
The big change in legislation that will impact restaurants and tipping is that mandatory tips or service charges will now be treated as wages. What does this mean for your operation?
- Be selective with service charges: Every operation has a different gratuity structure that was well thought out to the meet the needs of that particular operation. While there are scenarios that may still require certain service charges or automatic gratuities to remain in the operation, such as delivery fees or banquet charges, we have seen that many of our clients drop automatic gratuities all together. Removing these service charges helps servers who do not want to have service charges, which were once tips, be counted in wages that they have to wait for a paycheck to receive. This stops restaurants from losing out on the FICA tip credit and saves them from the additional headache for payroll and accounting – hourly pay rates will now vary depending on the service charges a server receives on a given day.
- Remove service charges altogether: Making the decision to cut out service charges altogether can be tough because they were historically included to protect servers from being stiffed, but it now seems they could have more negative impacts than positive. To help inform these decisions, some restaurateurs are trying out mandatory tipping alternatives. Darden Restaurants is doing a test with 100 restaurants to see if restaurants that remove the mandatory service charge see a serious decline in tips. Some groups are including recommended tip amounts or calculating tip amounts on the check to simplify the process and encourage the customer to include a tip, but removing the mandatory tip. If you cannot run tests on tipping trends with a 100-restaurant group, think carefully about the business case for having mandatory service charges in your operation. Whether you have 1,000 restaurants or 1, you can use Avero’s solutions to help you make thoughtful changes. You can easily see the trends in tipping over time and how changes you make to tipping policies impact your individual servers and revenues. Plus, Avero stores all historical data from your operation so you will always have a holistic understanding of your operation over time.
- Put the right processes in place: Once you have determined what tips and service charges you will have in your operation, it is essential to execute them smoothly. Setting up your POS and training your staff is the first line of defense in ensuring you are not hit with unnecessary taxes and penalties. Ensure you have clear practices for each operation, from the message on the menu and the check to the guest regarding tipping, to educating the servers on how they will be paid, to the way you clearly record all types of service charges for easy accounting and payroll.
Guaranteeing that your servers are getting the right tips and wages and that the restaurant is paying necessary sales taxes and maximizing FICA tip credits can seem daunting at times, but Avero’s solutions help you spend less time worrying about the tedious details around legal issues and more time improving the guest experience and operation. Learn more and get started today.
For a comprehensive look at all tax legislation impacting the hospitality industry, turn to the tax experts at CohnReznick, who have a specialty in the hospitality industry and recently published all of the key legislation impacting the hospitality industry in 2014.
