Restaurants are often confronted with the moral dilemma of whether their staff who serve clients are liable for paying tax on the tips or gratuities they receive from clients.
The tax treatment of tips paid by patrons to waitrons has been clarified by SARS in an Interpretation Note. The establishment/employer is merely holding the funds for the waitron/employee and performing a distribution role for the customer/patron.
Accordingly, under these conditions, the employer would not constitute an ‘employer’ as defined for the purposes of Employees Tax in relation to the tip or gratuity. PAYE would therefore not be deducted from the tip or gratuity by the establishment/employer.
It is important that waitrons understand that the income they received “directly” from a patron or from the establishment/employer where they are acting as a conduit for the distribution of the tips, that these tips must be included in the recipient’s (the waitron) ‘gross income’.
This means that the onus is on waitrons and other restaurant employees to declare the total amount of tips or gratuities received to SARS when completing their annual tax returns.
It is our recommendation that restaurants must have a policy and an acknowledgement by their waitrons that they understand this obligation and act responsibly when submitting their personal Income Tax returns.