The difference between directly tipped employees and indirectly tipped employees lies in how they receive tips and their interaction with customers:
1. Directly Tipped Employees:
- Definition: Employees who receive tips directly from customers.
- Examples: Waitstaff, bartenders, hotel bellhops, and barbers.
- How Tips Are Received:
- Customers hand them cash tips or leave tips on credit cards.
- They typically perform services that involve direct interaction with the customer.
- Tip Reporting: These employees are responsible for reporting their tips to their employer.
2. Indirectly Tipped Employees:
- Definition: Employees who do not receive tips directly from customers but share in tips pooled by the establishment or received from directly tipped employees.
- Examples: Bussers, cooks, dishwashers, and expediters in some restaurants.
- How Tips Are Received:
- They might receive a portion of the tips from waitstaff or through a tip-sharing arrangement.
- Tip Reporting: The tips allocated to them by the employer or through pooling are reported to the IRS.
Key Differences:
| Aspect | Directly Tipped Employees | Indirectly Tipped Employees |
|---|---|---|
| Receives Tips From | Customers directly | Other employees or pooled tips |
| Customer Interaction | Yes | Usually limited or none |
| Examples | Servers, bartenders | Bussers, kitchen staff |
Why the Distinction Matters:
- For Tip Allocation: Businesses filing Form 8027 must allocate tips when reported tips fall short of 8% of gross receipts. Employers consider whether employees are directly or indirectly tipped when calculating this.
- Tax Reporting: Both types of employees must report tips as income, but the source and method of receipt affect how records are maintained.
If you need further details on how to manage or report tips for your business, let me know!
