Dear Members of Congress:
Over the past few years, many independent restaurants and bars have taken steps to create a more equitable and viable pay structure for our workforce, which is cumulatively nearly 11 million Americans.
Restaurants have historically paid front-of-house service staff - waiters, bartenders, cashiers, and delivery drivers - with an hourly wage plus tips, provided at the discretion of the customer. Back-of-house staff such as chefs, line cooks, dishwashers, are generally paid a flat hourly wage. The tipping system often means that front-of-house workers have a much larger take-home pay than their back-of-house colleagues. Because of slim profit margins and a variable schedule for hourly workers, restaurants and bars have found it challenging to offer health insurance and other benefits to their teams.
Thanks to restaurant and bar owners committed to investing in their teams, a new model is evolving in the industry. This new model adds a service charge on each check that provides all employees additional wages.
Restaurants and bars that utilize a service charge model are currently being penalized by the tax system. Unlike tips, service charges are considered income and thus increase the businesses tax burden.
We are writing today to ask that you support 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
> Exclude service charge from the calculation of wages for overtime
Importantly, this legislation doesn’t require restaurants to switch to a service charge model, nor does it impact the current tip credit benefits.
This legislation simply removes the current tax penalty for restaurants that want to make the change.The service charge model ensures that employee compensation is fair and not reliant on the diners’ experience or bias. It also creates wage stability. Restaurant owners, who are facing challenges to hire and retain workers, find this model helps pay staff a significantly higher wage.
Restaurants serve our communities, employ families and feed our economy. We need your help so we can continue this important role for years to come.
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