‘Service charges’ may be tips—And therefore must go to waitstaff — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

‘Service charges’ may be tips—And therefore must go to waitstaff

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When entertainment venues sell prepaid tickets, these often include a “service charge.” If the business tells inquiring buyers that the service charge is a tip, and therefore discourages them from leaving additional money, the business can’t keep the money. It doesn’t matter whether the service charge is voluntary or mandatory.

Recent case: World Yacht operates dinner cruises in New York and often includes a service charge in the ticket price. The company retained some of that money. The waitstaff sued, alleging that the service charges were tips under the New York Labor Law, which forbids employers from retaining any part of a gratuity meant for waitstaff.

World Yacht argued that the service charges were not voluntary and therefore were not tips. But the court said that a reasonable customer who asked would be led to believe the charge was a tip. That was enough to make the money the waitstaff’s and not the company’s. (Samiento v. World Yacht, No. 17, New York Court of Appeals, 2008)

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