Resolve it: are tips gifts or wages
Pub Date: 6/1/2007
Are server tips wages or gifts?
That is a question that has been dogging hospitality business owners, government officials and lawmakers for a couple of decades here in Montana.
And the question is revisited and amplified–though historically unresolved–whenever a minimum wage hike is pushed through, as it was in the last election by way of a citizen initiative.
Business owners rightly expect to be treated fairly and, in the instance of calculating tips as income or gifts, they are decidedly not.
In the past legislative session two bills were introduced that would have clarified the matter. Neither passed so we yet have no clarity.
One would have allowed business owners to calculate some portion of server tips as wages when it came to meeting minimum wage requirements. It would not have changed today's minimum wage, but would have applied down the road when minimum wages will certainly go up again, since automatic increases are now tied to the rate of inflation.
Fair or not fair?
Well, servers and organized labor said it was decidedly not fair to include tips, which they said are in fact gratuities or gifts, and not real wages or income.
Some certainly buy that whole notion.
However, another bill would have ended the state's practice of counting tips as wages when they calculate how much an employer must pay for workers compensation insurance premiums and for unemployment insurance, both which have rates based on a business' total wages paid.
Organized labor and others testified, in complete contravention to their own earlier testimony, that certainly in this case you must count tips as wages because to do otherwise would lower employer unemployment and work comp taxes and, thus, unfairly lower potential worker benefits, since benefits are also linked to total wages paid.
Hmmm. Let's see if we've got this right:
Tips are not wages when it comes to calculating minimum wage rates; but tips are wages when it come to calculating work comp and unemployment taxes and benefits. Seems the employer gets dinged both ways.
Which is it? Is it any wonder business groups badly want this ambiguity sorted out, and some consistency applied to the issue of tip income? Oops, or is it gifts?
We would think business groups will be back at the next session seeking a solution. Maybe a legislator or two, or even an enterprising administration official, will beat them to the punch or perhaps it will be forced into court.
At any rate, it is time to introduce some fairness and consistency in place of this conundrum.
Source: The Montana Tavern Times, June 2007, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.