New Solution Launched by Evention Ensures IRS Tip Compliance for Hotels

Share Article

Evention's newly launched solution for employee tip out processing guarantees tip compliance, amidst recent tip reporting regulations from the IRS, which require hotels to differentiate between Service Charge and Charged Tips.

After analyzing the tip-out process across the industry, we found that the majority of hotels are unknowingly non-compliant with IRS Tip Regulations. We collaborated with our clients to develop a new module to solve this widespread industry need.

After piloting its newest tip out management solution, hotels across the United States now process employee tip outs using Evention’s new “Self Service Tip Out” solution. This newly launched solution provides tip compliance, amidst recent tip reporting regulations from the IRS, which require hotels to differentiate between Service Charge and Charged Tips.

Since Service Charges are imposed upon hotel customers and Charged Tips are discretionary, the IRS requires hotels to clearly designate tips and/or tip-outs as either Service Charge or Charged Tips.

The IRS website makes clear, “The Internal Revenue Service reminds employers that automatic gratuities are service charges, not tips.” In addition, “Generally, service charges are reported as non-tip wages paid to the employee. Some employers keep a portion of the service charges. Only the amounts distributed to employees are non-tip wages.”

Yet, in working to comply with IRS guidelines, hotels face the challenge of insufficient functionality from most POS systems. The majority of POS systems do not offer the functionality for a hotel associate to identify whether the “Tip Out” is a Service Charge or a Charged Tip. The POS systems often record this transaction as Charged Tips, the defaulted category within the program. To comply, hotels are left with manual processes and even paper tip-sheets to work around these limitations.

“After analyzing the tip-out process across the industry, we found that the majority of hotels are unknowingly non-compliant with IRS Tip Regulations,” states Mike Baldinger, Co-Founder/Managing Partner at Evention. “We collaborated with our clients to develop a new module to solve this widespread industry need.”

The advantage of full tip compliance, coupled with a more direct and efficient process for hotel staff makes Evention’s tip out solution the first of its kind.

Self Service Tip Outs by Evention is an online cloud application, which allows employees to conveniently make tip outs from any mobile device, tablet, or PC. Secured by a unique user login, every employee has the ability to “tip out” Charge Tips, Service Charge, Charge Tip Sales, Service Charge Sales, etc. either to an individual employee or to a pool.

In addition to guaranteeing IRS compliance, Self Service Tip Outs by Evention also simplifies the management of tip outs at the property. After the employees create the tip outs, managers only need to review the daily/weekly totals. Using the robust reporting features inside Evention, the managers simply approve and close the pay period. Furthermore, payroll for tip postings is automated. Evention generates a payroll file, which is uploaded and used to distribute all gratuities. 

The increased visibility offered by this solution also makes this a useful tool for management-employee relations. All employee activity on the module is tracked and visible to the management team. While management can leverage this tool to enhance staff accountability, employees benefit from greater knowledge of the tip distribution.

While other POS solutions do not always account for the IRS requirement to differentiate service charges from tips, Self Service Tip Outs by Evention was specifically created to solve the industry-wide challenge of complete IRS tip compliance.

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Elizabeth Kenney
@EventionLLC
Follow >
Evention
Like >
Evention

Visit website