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They do not affect the Results of the Companies

They do not affect the Results of the Companies


Tipping is becoming less frequent and there are often doubts about whether or not to leave a tip. There are people who consider it a form of underground economy accepted by society, while others see it as an effective way to incentivize good service and give extra income to some professionals.

The government of the Community of Madrid reopened the debate on tips with a social media campaign encouraging citizens to leave tips in bars and restaurants. "They are the ones who make our lives a little easier and happier," says the Madrid executive's spot about waiters. "Tips are those little dreams of those who take care of us every day," he adds, such as going to English classes, giving a gift, or paying for a child's piano lessons.

The campaign has raised all kinds of criticism on the internet and some Twitter users even accused the president of Madrid, Isabel Díaz Ayuso, of wanting to import the working model of the United States restaurant, where tipping plays a central role in employee benefits. In that country, the federal minimum wage is only $7.25 (about €6.80) per hour worked, but the legislation makes an exception for waiters: if a worker receives more than $30 (about €28.25 ) per month in tips, the minimum wage is legally reduced to $2.13 (about two euros) per hour. This situation, unheard of in Europe, explains why in the US it is almost mandatory to leave a 20% tip at all meals: consumers know that waiters need this extra money to reach a minimally decent salary.

In Spain they are legal


What is clear is that, in Spain, tips are perfectly legal and are provided for by law. Of course, they have a different tax treatment than wages.

In the case of Spanish legislation, "there are theoretically two ways" to manage tips, says Albert Sagués, professor at the UPF's Barcelona School of Management and tax expert. The first is that the waiters "self-manage" the total tips among themselves and "in the end they distribute" the money according to the criteria they decide among the group, the professor says.

In this model, the company has absolutely nothing to do with it, so it has no control over the amounts charged by waiters as tips and, by extension, no obligation to report to the Inland Revenue or to tax anything. "It's a more cooperative model," says Sagués, in which the employer remains completely unrelated to the payments.

Results of the Companies


The other way would be for "the employer to manage it", that is, for the company to distribute among the workers the money collected for tips, explains Sagués. In this case, however, the employer is obliged to inform the Treasury and pay what is appropriate, since it is a supplement to the workers' salary that he decides directly.

The law that regulates personal income tax (IRPF) states that companies must apply the corresponding withholding tax "when they pay their staff amounts paid by third parties as tips, remuneration for service or others similar". Therefore, if the company manages them, the Treasury requires that tips be included as part of the workers' salary.

However, since they are not considered part of the restaurant service and are a payment outside the price marked on the invoice, they are not counted when paying VAT. Also, tips do not contribute to Social Security, with the exception that the collective agreement of the sector in question obliges.

The customer cannot be clear – unless he asks – how each company manages tips and whether it chooses to leave the distribution in the hands of the employees themselves or, on the contrary, is distributed by the employer. This makes it difficult to know whether these tips are accompanied by the corresponding income tax withholding and therefore whether they will pay tax or not.

In any case, at the moment the law does not place much emphasis on tipping and considers it a minor and purely complementary transaction between consumers and workers. Also, unlike the US, they do not represent the bulk of the salaries of waiters, taxi drivers, or other public-facing professions. All of these jobs are regulated by the same laws as non-public jobs, so the same minimum wage criteria apply to them, apart from sectoral or company agreements.

They do not affect the results of the companies


It should be noted, however, that tips affect employees' salaries, but are not counted in the company's results. Unlike the rest of what the customer pays – for example the price of a restaurant bill – they are not an income. They are also not considered an expense, unlike the fixed salary. The legislation states that the company acts as a simple "intermediary" between customer and worker for additional remuneration for the waiter's service, not for what the restaurant provides, which is already included in the bill.

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