Success Story: Evention Automation Satisfies with Self Service Tip Outs

Precise tracking of direct tips, indirect tips, and service charges is what keeps a hotel property compliant with updated IRS requirements. The Tips+Gratuities module delivers that precision automatically.

Highlights

• Module: Tips+Gratuities, part of The Evention Platform.
• Industry: Hotels.
• Problem: Updated IRS requirements treat service charges as wages, not tips, so hotels must separately track direct tips, indirect tips, and service charges. Tools like Micros Tip Track default every tip out to Charged Tips, which is not compliant.
• Solution: Associates log Tip Outs, Charged Tips, and Service Charges through Tips+Gratuities from a mobile device, tablet, or desktop. The Evention Platform generates the payroll file automatically, preserving the distinction the IRS requires.
• Result: Payroll runs clean with no manual tip-sheet entries, tip compliance documentation exists automatically, and sales, tips, and charges paid out reconcile to the POS total every pay period.

Problem

Following the update to IRS requirements, accurate tracking of tips versus service charges is critical to a hotel property's tip compliance. Service charges, including those received as indirect tips, are treated as wages rather than tips. That means they are subject to social security tax, Medicare tax, and federal income tax withholding. As a result, guaranteeing tip compliance now demands precise tracking of direct tips, indirect tips, and service charges. Programs like Micros Tip Track are not built for the new requirements.

In most cases, hotel employees are currently tipping out fellow associates through Micros Tip Track or a similar program. These programs typically have no way for an associate to identify whether a “Tip Out” is a Service Charge or a Charged Tip. Every tip out defaults to Charged Tips, which is not compliant with IRS regulations. The IRS requires properties to differentiate between the two: Service Charges are imposed on the guest, while Charged Tips are discretionary to the guest. So when an associate tenders a party of more than five, or applies a Service Charge for any reason, and tracks it through Micros Tip Track or another non-compliant program, that Tip Out is already out of compliance with IRS Tip Reporting.

For more on how the FLSA governs tip pooling, see Is Your Gratuity Program Compliant?. For the distinction between a service charge and a discretionary tip, see Service Charge or Tip? What Restaurants Need to Know About Legalities and Customer Perceptions.

Solution

The Tips+Gratuities module gives associates a secure, individual login to Evention's cloud application from a mobile device, tablet, or desktop. From there, associates record Tip Outs, Charged Tips, Service Charges, Charge Tip Sales, and Service Charge Sales, whether at the individual level or across a pool (see How to Establish a Compliant Tip Pool). The Evention Platform generates a payroll file directly from that data. The file is uploaded and used to distribute gratuities, and the distinction between Service Charges and Charged Tips is preserved throughout, so the property stays compliant with IRS Tip Reporting guidelines. Managers review the reporting and close the pay period without reconstructing anything by hand.

Results

For staff, tip-outs are calculated automatically, with no manual tip-sheet entries. Employees can view their direct and indirect tip details by logging in at the end of a shift. For accounting, the property is tip-compliant for both tips and service charges, and payroll for tip postings runs without manual intervention. Management can confirm that sales, tips, and all charges paid out reconcile to the POS total every pay period, because the validation happens continuously rather than at close.

For guidance on choosing a distribution method that fits a property's staffing model, see A Hotel's Guide to Managing Tips and Gratuities.