New 2014 IRS Rules on Mandatory Tips Could Lead to Wage Lawsuits

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After being given two years to allow restaurants and related businesses to plan for a change in how the IRS categorizes service charges and mandatory tips, it is possible that some employers may not be ready for the change in policy that started Jan. 1, 2014. Service employees may need to consider their options, including working with an employment lawyer.

Previously, there had been a lack of clarity regarding so-called “automatic gratuities” which consumers may recognize as the mandatory tip added to parties of certain sizes at restaurants and other service entities. Servers, bartenders and others had previously been forced to report and pay taxes on these amounts on their own, but they will now be classified as part of their standard wages.

Some companies are already saying that they will simply stop the requirement for parties of certain sizes, but the potential ramifications could include an uptick in wage and hour class action lawsuits. It is not just the mandatory withholdings that companies must assess for employees such as FICA, however.

In many states, there are rules regarding overtime and wage floors. Overtime that is calculated based on wages as well as service charges could increase the amount a worker is owed if they work more than eight hours in a given day or 40 hours in a given week and restaurants and bars must account for that change. In addition, in some states like California, employers must pay the minimum wage beyond any tips generated and also need to make the change to deal with service charges.

If employers do not make these changes, then wage and hour class action lawsuits could hinge on one or more of the following issues:

1) Lack of withholding of wages, including service charges, for federal tax purposes such as FICA

2) Calculation of overtime must include the earnings that include service charges and automatic gratuities whether an employee has worked more than eight hours in one day or 40 hours in one week depending on state and federal law

3) Compliance with state and federal minimum wage laws accounting for the difference between service charges and tips

If you believe that you have been shortchanged in violation of the new 2014 IRS regulations, you may be eligible to pursue damages. Learn more about your options and get a free consultation with an employment lawyer at the Service Charge, Wage & Hour Class Action Lawsuit Investigation today. If you qualify, an employment attorney will contact you to review the facts of your potential case.