Allocated Tips Definition
All businesses classified by the Internal Revenue Service (IRS) as large food or beverage establishments need to report tips received by their employees. If the total reported tip income is lower than 8% of the overall receipts for a period, the difference needs to be allocated by the employer.
Allocated Tips Extended Definition
Allocated tips are applicable for all large food and beverage establishments that offer beverages or food for consumption on site, where tipping is customary, and where more than 10 employees worked for over 80 hours over the preceding calendar year. Owners are required to ensure that the total tip income over a pay period is at least 8% of the gross receipts. If the reported tip income falls short, employers must reimburse the difference between 8% of overall receipts and actual tip income.