UnderCover Waitress: Under The Table

Thursday, May 10, 2012

Under The Table

Ask the Waitress!

Got a question about a restaurant owner's lack of bookkeeping. Here are the relevant details:

  • Employees do not receive a W-2 or a 1099.
  • Shift wages are paid in cash.
  • Flat fee as opposed to hourly wage per shift, plus tips. 
  • Fee for shift is $20; shift may last 9 hours. 
  • Restaurant owner has recently decided that waitresses must pay tax on their charge tips. 
Creative bookkeeping and broken laws, let me count the ways...

W-2 or 1099

Employees receive W-2 forms; independent contractors receive 1099s. If you work for an employer who gives you your hours, meaning your employer tells you which shifts you will work, and the employer determines where the work will take place, you are an employee. Employers must give employees W-2s, and the IRS have heavy penalties for those who fail to do so. 

Independent contractors are self-employed. If a self-employed person makes $600 or more from one client, then that client must send her a 1099. 

Based upon the information you sent me, the restaurant owner is breaking the law by not providing W-2s. 

Flat Fee or Hourly Wage

We have minimum wage laws in this country to protect employees. An independent contractor may accept a flat fee for a specific work product; for example, I may agree to write an article for a publication for a flat fee of $20. Whether it take me two hours or ten hours to write the article is a moot point. Hourly employees must be paid a minimum wage per hour worked or the employer is breaking the law. 

Let's look at the numbers. I don't know what state you work in, and some states allow employers to pay tipped employers a lower minimum wage. The federal minimum wage for tipped employees is still only $2.13 per hour. 

$2.13 x 9 hours  = $19.17. 

If you live in Connecticut, the minimum tipped employee wage is $5.52. 

$5.52 x 9 hours = $49.68. 

California law does not allow tip credits. This is the same as saying that tipped employees make the same minimum wage as everybody else, which is $8 per hour. 

$8 x 9 hours = $72. 

So, you can see that in all likelihood you are being exploited by an employer who is breaking the law. 

The restaurant owner may be breaking overtime pay laws. I do not know because laws vary from state to state, and I don't know how many hours you work per week. 

You didn't say whether you get any breaks during the 9 hour shift. If not, labor laws regarding breaks are most likely being broken. 

Tax on Tips

These days, tips are considered income and all tips are taxable. Cash tips and tips left via credit cards are to be reported as income.

If you are being paid under the table, then you are not paying taxes on any of your income. Your employer is also cheating on his taxes as an employer.

Based upon the information you gave me, your employer may be worried that the IRS will see the tip income and know that the law is being broken. The restaurant owner wants you to pay tax on charge tips so he doesn't get caught.

If the IRS realizes that there is income to the restaurant and taxes were not paid, the IRS may choose to audit the restaurant owner. If he gets audited, the fees alone could break him, to say nothing of the back taxes he will owe. Based upon the information you gave me, the restaurant owner could, at worst, serve jail time if caught.

Technically, you are also breaking the law because you are not claiming your income. If the IRS audits the restaurant owner, they may or may not decide to audit all of the so-called "employees." My advice, at this point, is to look for a job with a more honest employer.

Best of luck to you.

My disclaimer: Hey, I'm not a lawyer and I don't give legal advice. I am also not a tax consultant. I'm just a stupid waitress! :-D


  1. Just one of those is shady, and this has five really shifty things going on!

    1. It seems a bit far-fetched, but I have seen some bad things in the industry. Probably not limited to just the restaurant industry, either. Figured the points above might prove helpful to someone.


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