Legal Updates

Tips received by restaurant employees are salary including for purpose of tax payment and employees benefits

March 26, 2018

Many employers in the restaurants industry do not pay the service providers (waiters and others) but only pay the minimum wage to the extent that the "tips" the waiter receives do not reach that amount. Amounts above the minimum wage reach the waiter, but are not reported to the Tax Authority.

The National Labor Court held that income from tips should be regarded as the income of the employee, whether for labor law purposes, social benefits or reporting and paying taxes, as if the employer received the funds and paid them to the waiter. This will be the case even if the tip money was physically given directly to the employee without first being paid to the employer. An employer may see the "tips" as part of the salary of the waiter but the employer need to pay by itself and separately obligatory payments, pension contributions and social benefits, unless the employer, in a written agreement and subject to the law, reached a different agreement with the employees. Because of the material change this case law does, the change will take effect only January 1, 2019.