Andy M. said:
IC:
All businesses have to deal with payroll and income taxes. If the restaurant's revenue goes up in this example, so do its expenses. The bottom line (income) wouldn't increase unless the owner didn't pass all of the extra 20% to the employees.
The only expense that should increase is payroll, but in an ideal situation, revenue will directly reflect that or it should stay the same after deductions and allocations. The bottom line would actually
decrease if you increased prices by only 20%, if you planned on giving the waitstaff their full 20% increase
without full taxation. After you allocate the price increase to wages, the restaurant will take the bite on the tax relief that you are giving the waitstaff, in order to give them their full gratuity. You would then be taking money out of the revenue after tips to make up that percentage, resulting in less profit.
If you plan on taxing the full 20% so that it will not affect revenue, the waiters will actually make less (consider the fact that most waitstaff do not delcare 100% of cash tips) and will not be happy with the situation. The restaurant's profit margin will most likely stay the same, but the waiters will only get say 12-13% of the money that was intended with the price increase, after tax is deducted. They'll get even less if your restaurant tips out the bussers, bartenders, hostesses, etc., say 5-7% total so they'll end up with only 6-7% of the total 12-13%, plus their hourly wage (which again, doesn't amount to much since they get taxed on their sales and not only their tips).
Everyone needs to remember that with this system that is being "proposed", do you guys intend it to benfit the employees or the customers? The waitstaff where I work often make 30-40% sometimes on tables that appreciate their service (keep in mind that this is on a $70-80 per head check average) and would be outraged if their average income would be mostly limited to 20% (at best--before tip outs and/or taxes) of their revenue on average. I would say they make on average 25% tips a night, so they would be taking a huge decrease in pay. Imagine if someone told you that they would be taking away 20% of your salary? Sure, some guests would be inclined to leave extra cash on the side, but with added gratuity, the inclination to do that lessens considerably, unless you wait on people who are in the industry. Remember that most waiters, unless the tips are pooled, do not declare anywhere close to 100% of their cash tips unless they've been audited before. Under the proposed system, all tips, be it cash or not will be taxed because it will all be recorded and sent to the IRS.
Either way, under the proposed system, somebody will be guaranteed to lose or be forced to spend more money beit the guest, the restaurant, or the waitstaff.