Court rules waiters must pay tax on tips, sparks fears of restaurant price rise

Restaurant and cafe prices are likely to rise next year following a labor court ruling Monday that tips paid to restaurant staff will be treated from January 2019 as part of an employee’s salary.

Employers will be obliged to pay benefits such as pensions, health and income tax and national security contributions, while employees will have to pay income tax on the cash.

The ruling means that in the absence of any other guidelines, employers will be barred from using centrally-collected tips to pay anything other than their workers’ salaries. It applies to all tips, whether paid directly to the waiter or waitress and regardless of whether they have gone through the till or not.

One consequence is that in calculating salaries for the purpose of unemployment benefits, the National Insurance Company will have to add tips, which it has not done to date.

In his last decision, the outgoing president of the National Labor Court, Yigal Flitman, set January 1, 2019 as the implementation date to give the government time to pass any necessary legislation and because National Insurance payments are calculated on an annual basis.

The ruling, reached by an expanded bench of justices, came in response to two separate petitions.

In the first, waiter Yechiel Bodeh sued the Alfredo restaurant in the central city of Petah Tikva, claiming that he had been paid nothing but tips in two years of working there. The restaurant countered that it had agreed with him in advance that his tips would constitute his salary. A Tel Aviv district court ruled in favor of the waiter and ordered the restaurant to pay him a full salary for the period worked, amounting to more than NIS 100,000 ($28,600), despite the relatively high sums he had received in tips. The restaurant appealed the decision.

In the second case, a waiter sued the National Insurance Institute to receive a benefit, and as part of this, the labor court was asked to rule whether the NII should include tips in its calculation of his salary.

Flitman ruled in favor of the Alfredo restaurant and against Bodeh. He also rejected the waiter’s appeal in his case against the National Insurance Institute.

As for waiters and waitresses, an accountant who represents many restaurateurs said they had “shot themselves in the foot.”

Tiko Franco told the Walla news site that the “saga” of “dishonest” waiters asking for tips as well as salaries had ended, and that from now on, waiters and waitresses would take far less money home, no longer receiving cash in hand, but just a check with a single sum, after deductions have been made.

He added that employers’ additional costs would likely be incorporated into the price of meals.