Please explain the logic and legality of employer deducting tips from my paycheck.?

Question

Lets say... I do a haircut that cost $20. The customer uses a credit card to pay. They add $5 as a tip.
It is rung thru, the $25 is now technically in the cash drawer.
I take out $5 from the drawer as my tip.
When I get paid, the paystub shows $5 deducted from my pay.

How is this legal?

Regis Corp Salons (SuperCuts, MasterCuts, HairMasters,etc and other chain salons ALL do it).

Then on top of that, I must claim my tips and am taxed on them at the end of the year.

I don't get how this is legal!

PLEASE!!! Someone tell me how this could be right, and if not, who do I go to, to file a greivance or lawsuit?

Please don't stop giving a tip to a stylist for good service.
Just give it to them in CASH... then it does not get taken away from us and we don't need to declare it.
CASH CASH CASH!!!

I understand about taxing the tips. Yes, they should be reported as income.
My problem here is that the company takes the tips out of my paycheck. I never even get that money. Then, at the end of the year, it is reported as income and I am taxed on it, even though it was taken out of my check.
I don't care about paying the taxes. I would do it anyway.
The issue here is that the company takes the tips out of my check.
I get the cash on the day of the service, but on my check it is taken back out, so technically I "borrowed" the money, that is mine to begin with and then they take it back.

Answer 1

Regis Corp is absolutely criminal.
I only go to privately owned salons.
I don't care if any Regis owned salon is GIVING AWAY haircuts. I would never do ANYTHING to support their business.

They are total liars too.
They claim they don't own Great Clips or Sports Clips but look their HQs up online, they are all the same address in Minneapolis.
You can ask your boss if Great Clips is Regis. They will look you in the face and lie, and tell you no.

Hairstylists are like slave workers today.
It is no longer a glamorous or elite profession.
( How do you want your hair cut? Ya want fries with that?)

I would contact a lawyer.
It may be worth your while to file a lawsuit for recompensation as well as a hefty damages amount.

And to the rest of you out there....
TIP in CASH ONLY.

Answer 2

That really stinks!! It doesn't surprise me but I can understand your frustration completely! I will be learning about this in my next year of college but can't offer any help quit yet. If I were you I would seriously look into this though and find out for sure if your employer is right in doing that. Did you ask your employer about it?
If I get a haircut from you, then I want my tip to go to the person who earned it, not the company. I personally don't let a tip be added on if I use a credit card, I always use cash for a tip. Does your employer make you hand over all your tips at the end of the day? I will be really curious on how this question turns out and will be watching. Goodluck with finding out more info on this.

Answer 3

your employer is not tax exempt. he is running a US trade or business that has income effectively connected to the US. This means that he will be taxed on that income as will you. You must report the tips as income to the IRS. The method for doing that is to fill out the self-reporting slips that the employer is supposed to supply you. The corp will encounter problems with the IRS if it discouraging the IRS's collection of revenue. The reason cited that it is a family owned business means nothing. One person, 5 persons, 500 million person corp, related or not, will owe US tax in that situation and this owner is not an exception. I believe you question is how do you pay tax now instead of later, but it is actually better to pay the tax later if possible because of the time value of money. You should "guestimate" the amount of tax owed, and put that money into a savings account, then pay the tax at the end of the year and you have earned interest. Don't be afraid to ask the IRS either. They can actually be friendly and informative.

Answer 4

I’m not an accountant, financial planner or tax attorney - or any type of attorney for that matter. I don’t work for the IRS. I THINK I see what you mean from your perspective. BUT here’s the way the IRS sees it from their perspective:
You want to “have your cake and eat it, too”, don’t you? I’m sorry it doesn’t work that way.
1] You are working in a “cash business.” You aren’t alone. There are many folks working in “cash businesses”. Here are a few: Bartenders; Waiters and Waitresses [more commonly known today as “Servers”]; chauffeurs, etc.
Together with the other professions/positions I mentioned AND many more, your profession was made part of the IRS Code. .
2] The IRS wants “their piece of the action” AND they get it! One way or another - they get it. YOU HAVE to “Pay the Piper”.
3] Please answer this question AND PLEASE be honest with yourself: Of the customers/clients you render your services to and for, how many - as a percentage - pay you using a credit card? 10%? 25%? 40%? 50%? 60%? More? I don’t know. I was never in your business. I DO KNOW its not 100%.
4] Many of your customers/clients pay you with cash. They tip you with cash. From the language in your question, you prefer being paid in cash. THEN you won’t be on the IRS radar screen.
5] There are only two ways I can think about for you to avoid paying taxes on your tips:
a] ALL your customers/clients must pay YOU by cash. ((((The chances are slim to none of this happening AND slim JUST took the last train out.))))
b] Keep very good records and consult with a competent, knowledgeable accountant - one familiar with the workings of your type of business/profession. When you find the right one, MAYBE you’ll save a considerable amount on your taxes next year.

The chains you mentioned above should have competent, knowledgeable accountant[s] OR those chains wouldn’t be making the deductions they make from your paychecks and every other operator’s paychecks, would they?
6] Unless and until you do 5b], you’ll be doing the same complaining every year.

I wish you well!

VTY,
Ron B.

Answer 5

First of all, your not alone and to all the people who are answering this question with semi-sarcastic and completely rude remarks- the companies that do this (I've worked for more than one) are not ONLY doing this one thing which is kind of logical but also really screwing people over- they are not some nice business owner helping you do the taxes for your tips properly and unless you have legitimate experience with that type of situation you should honestly keep your opinions on someone else's math skills or work ethics to yourself.
This is a problem I have too- it's on the edge of legal and not. Your tips are yours, but since you get that cash in hand the rules are super sketchy. Definitely discuss this with a professional and tell them to give you the tip only on the paycheck then record every damn tip you get that pay period.

Also really get to know labor laws in your state. They are probably disobeying a few. Good luck.

Answer 6

Don't blame Regis, blame the Tax Man (IRS). By law, Regis had to add that $5 to your gross amount immediately instead of at the end of the year. Even if they wanted to hide it, they can't. They'd be accused of 'cooking the books'. The paystub also shows you got it immediately.

Let's say you worked one hour on that $20 sale and you get $10/hr for wage. The paycheck will show $15 gross and that you took your tip (-$5). The gotcha is that the $5 is taxed immediately with the $10 for SSN and Medicare (10%) and add to the greed of the tax man, the whole $5 tip gets taxed at the end of the year instead of just a portion of it (8% of $20 sale = $1.60)

Most tip-related businesses, including Regis, don't force employees to report actual tips every night; but many do. Those that don't use the 8% rule to save the tip earner from the tax man. To be honest, i don't think tips should be taxed at all. The business got their sale and profit from the transaction. The tip has nothing to do with the business and is considered a gift from the customer to the person that served them in gratuity.

Answer 7

For all those on the high horse of "You have to pay taxes because you use the road, need police etc." you need to learn history. TAXES was one of the MAIN reasons for America BECOMING America. So, with respect, shut the hell up.

I understand why there are taxes, everyone does. They are NOT necessary, but because people wont walk outside and fix a road, take care of old people, heal people for free (Europe... Canada... Ancient times... we could learn a lot) and because it costs TOO MUCH for pills or even medical help, we have them. Greed.

Now, with that said, I think the problem is this; people that have to claim taxes without knowing it will be deducted form their pay get shafted. Why? lets say you earned $50 in tips and claimed them without knowing you have them deducted and rent comes along. "Oh! I earned an extra $50 so I can make rent!"
payday comes along and guess who gets screwed?

It should be illegal to deduct taxes from ANY pay. why? Because the people handed the employee the money because they wanted the employee to have it for doing a good job. the company is literally stealing from the customer and employee. I pay tips because i want the PERSON to have the extra money for doing an amazing job, not the company. If I wanted them to have it I would have just said "Hey, heres a few extra dollars just because!"

How about instead of worrying about people that EARN tips not paying the taxes on the tips (Because they already do from their paycheck) how about worrying why politicians get so much money to be assholes that run a country into the ground and bicker and complain like children in an elementary school class about who will be the class president and lead the pledge of allegiance.

And as far as cops go? I know a lot, but when it comes down to robbery, violence, a person robbing a bank or threatening to kill someone, I'd rather take care of it myself. Because I am there and because I trust my judgment better than theirs. But it's illegal to interfere. Even Citizens arrest can get you arrested these days.

So yeah. I handed THEM the tips NOT the company. And I am pretty damned furious to learn that money just went to an already rich company and not a person who I enjoyed and believed deserved it.

Answer 8

Here is what is happening....probably.

All of your income needs to be reported to the IRS. If you worked somewhere where there were no tips, all of your income shows up on your W-2. Just because someone is giving you cash for your service doesn't mean it shouldn't be reported. If that were the case, those who don't receive cash tips would be paying the tax burdon for those who do receive cash tips which isn't fair. One could argue that waitresses don't make much money, but neither do hotel maids and McDonalds workers.

Your employer is doing the correct thing by reporting all of your income to the IRS. You must tell your employer about your cash tips as well. That is all earnings, just like the $7/hour made by a McDonalds employee is earnings. People who get tips shouldn't be treated any differently. This is not a gift....it is earnings for doing a great job. You deserve the money, but you must also fulfill your obligation to the country and pay your fair share. You do use public highways on your way to and from work, don't you? You do rely on the local police to keep the peace and quiet while you are working, don't you? You expect the water from your tap to be free of disease, don't you?

Since you took the $5 from the drawer, your employer needs to subtract the $5 from your pay. You technically earned $25 total. You took $5 from the drawer, so you get the remaining $20. You are taxed on the whole $25. This is as fair as it gets. You expect to get social security when you retire, don't you? I don't see too many seniors going around saying, "You know, I don't need that check every month. Mr. Social Security, stop sending me checks, please."

Be happy you are employed and that your skills are enjoyed by the public so much that they feel compelled to give you more than what you asked for. Remember, the IRS never gets more than a small percentage of your income no matter what, so go out there and earn as much as you can and give Uncle Sam his share and enjoy life. Stop worrying about a few percent.

Answer 9

Best case scenario:

Let's say, for the sake of argument...

* At the end of the week, your customers paid $1,000 for all the haircuts you did that week (some credit card, some cash).

* The total of all your tips for the week was $200 (also some credit card, some cash).

* You took $200 out of the cash register for all the tips you received that week.

If I were the owner of the shop, I would report on your paycheck that you earned $1,200, withhold taxes based on that $1,200, and then deduct the $200 cash that you already received.

Why? Because tips are income, and taxes need to calculated on those tips.

Answer 10

You seem to be having problems with basic math.

You got $20 for the haircut.

You got a $5 tip.

All $25 went into the drawer.

You pulled out $5 in cash

Your paystub says you got $25, but they subtract the $5 you already took out of the drawer.

There is NO MISSING MONEY! The check gives you credit for the $20 and you got $5 in cash. 20 + 5 = 25