This new IRS rule might mean the end of the automatic gratuity that has become so custom in Las Vegas nightclub and Vegas pool parties. Every Las Vegas nightclub server knows the beauty of the automatic gratuity. That $500 bottle of Grey Goose that gets a 20 percent auto-grat is the key to a far better living than working at any other restaurant. The question is: will the change in the IRS rule that goes into effect January 1st make some of the Vegas pool parties do away with auto-gratuity altogether.
Automatic Gratuity Changes Details
The IRS came to the conclusion that many automatic gratuities are not really gratuities, but rather they are service charges. They determined this because the customer doesn’t really have a choice on whether to leave the gratuity or not.So as of January 1, that common automatic tip for bottle service in a nightclub or for large parties at a restaurant will now be considered a service charge.
How is this going to effect the staff at Vegas pool parties?
This new IRS law can effect the Las Vegas hospitality industry in the following ways!
- The service staff will need to wait for that money to come on a paycheck instead of taking the cash home that night.
- The money will be taxed as a wage instead of a tip, which brings no added tax burden for the server. But there is a behind-the-scenes impact from this seemingly small change that could get ugly.
Because a service charge must be recorded as a wage, restaurants and clubs lose out on Medicare and Social Security tax credits that came from money that was logged as a tip. Plus, payroll paperwork gets complicated, as this new wage money needs to be factored into an hourly wage that will fluctuate weekly based on the number of these new service charges reported.
Possible Auto Gratuity Changes
There are some venues in New York City that are just paying higher hourly wages to the service staff and in turn raising the prices on their food that will include a service fee. Changes like these in Vegas pool parties would surely have an impact on income for servers that are heavily reliant on these high-dollar auto gratuities.
We will see how this new rule changes the service industry in Las Vegas!
Read more about this topic in The Death of the Auto-Gratuity by Brian Sodoma.