Today, the Independent Restaurant Coalition (IRC) sent a letter to members of Congress signed by more than 400 restaurant and bar owners, employees and diners in support of changing the taxation of service charges.
The current federal tax system penalizes restaurants and bars that move to a service charge model in order to improve employee benefits and employment conditions. The signers of this petition support federal legislation that will empower independent restaurants and bars to be able to choose which business model works for them without seeing their tax burden increase.
The IRC is leading the advocacy for a legislative change that would treat service charges like tips and exclude service charges from FICA taxes; cap the excluded percentage of service charges at 25%; ensure service charge goes to non-management employees, in the form of wages; and exclude service charge from the calculation of wages for overtime.
“Giving restaurants and bars the option to utilize a service charge model creates a level playing field with those choosing to use the traditional tipping model. Service charges create wage stability within an industry that is facing enormous challenges to hire and retain staff,” says Erika Polmar, executive director, IRC. “Restaurants serve our communities, employ families and feed our economy. Changing the tax policy on service charges would create a more equitable and viable pay structure for restaurant and bar workers across the country.”
This service charge legislation would not require restaurants to switch to a service charge model, nor does it impact the current tip credit benefits. If passed, it would simply remove the current tax penalty for restaurants that want to make the change.
"Our service charge has given us the resources to close the wage gap between front of house and back of house, providing a fairer and more equitable model in which to run our business,” says Paul Reilly, chef/owner, Apple Blossom and Coperta, Denver, CO. “It also gives us the liberty to provide additional benefits to our team that we have not been privy to before. This legislation would be a game-changer for our small group’s bottom line.”
“Members of Congress have the opportunity to support the tens of thousands of independent restaurant and bar owners working to create a more equitable and viable pay structure for our workforce of nearly 11 million Americans,” says Cheetie Kumar, chef/owner, Ajja, Raleigh, NC and board member, IRC. “We urge them to quickly pass this service charge legislation and give locally owned restaurants and bars – the heartbeat of every community across the country – the necessary tools to implement labor practices that meet the needs of their workers and business.”
ABOUT THE IRC:
Founded in March 2020 by the restaurant and bar community, the Independent Restaurant Coalition began with a singular mission — to save independent restaurants and bars impacted by COVID-19.
Today, The IRC represents the unique needs of the independent restaurant and bar community across the country, and has grown into a grassroots movement empowering more than 150,000 independent restaurant and bar owners, suppliers, workers and diners to take action and advocate for the policies that will create a sustainable future for independent restaurateurs, their employees, and the communities they support. For more information, please visit independentrestaurantcoalition.com
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