A Note About Skimming Tips

This transaction has changed a lot now that we all have credit cards.

This transaction has changed a lot now that we all have credit cards.

The Door Guy is a veteran of countless clubs around town. People say they've seen it all, but he's seen more. Write to him for everything from live advice to life advice.

Dear Door Guy,

I am super mad, and I bet when you watch this video you'll be pissed, too. Is this bar owner really saying that he used to skim his staff's tip money? WTF? It's bad enough he's trying to lower minimum wage for bartenders and waitresses at my favorite bars, but he's bitching that he can't steal from them? This is bullshit! What do you think of this?


See also:
Why Tipping Musicians Is Important


Bartender at Skyway Theatre

Bartender at Skyway Theatre

Dear DST,

Anyone who reads this column knows that I'm 100 percent on the side of my fellow Door Guys and other worker bees. In the embarrassing number of years I've been doing this job I have seen every shady stunt under the sun pulled by bar owners and managers.

I've seen people have to wait four or more hours for their shift to start (totally illegal) and not complain. Because if they do, they know their shifts will be cut. I know a few places where people worked under the table, didn't collect a wage at all, or got rewarded for sticking around to help out off the clock with beer after bar close. Hell, several years ago there was a place where the manager thought it was okay to pay servers less than minimum wage because bars should qualify as "seasonal work" since things get slow in the winter. There's plenty of bullshit things that happen in the bar industry.

But TIPS, believe me, this isn't one of them. The video might be titled "Cafe Owner Implies Money Was 'Skimmed' From Workers Tips 'Years Ago'," but anyone who's worked in a bar knows that's absolutely incorrect.

Some context: Currently, there's a bill in the state legislature to change the minimum wage for tipped employees, and the video is footage from testimony at the Capitol about the bill. Minnesota is very rare in that there is no separate minimum wage for tipped employees. In most states, tipped employees make a lot less hourly than minimum wage and some people think that it should be the same way here. It was even an issue in the 2010 governor's race, for some ridiculous reason. (Remember when that kid threw pennies at Tom Emmer? Now that's heckling!)

The guy in the video is a bar owner by the name of Tim Mahoney. I don't know Tim, and I'm pretty sure I've never set foot in his bar, but I know exactly what he's talking about in that video. To clear up the misunderstanding, we in the Door Guy Guild decided to give Tim a call and give him a chance to explain before you organize a protest at his bar.

The truth is, what Tim is describing not owners stealing from their employees, but something decidedly less shady: the convoluted rules about how tips (represented by a percentage of sales) are reported to the IRS. Not quite so sexy, huh? When told that some people watching the testimony thought he was talking about ruthlessly shaking waitresses down for their tips, here's what Tim explained:

"Without really knowing the industry, I can see where someone would say, 'Hey, give us your money and we'll give you 8 percent'...but the money's in your pocket, you control your own money. The skimming part wasn't from the ownership side, it was from the wait staff side. Skimming is the wrong word, massaging the numbers is probably the right word."

Still confused? Let me explain.

Your favorite bartender doesn't just pay taxes on her hourly wage, she has to pay taxes on her tips as well. When you pay your bar tab with a credit card and write down your tip, there's a record of exactly how much your favorite bartender got from you, and she has to pay taxes on anything you tipped her. Those taxes are deducted from her paycheck. (Since wait staff make way more in tips than hourly wage, it's entirely possible for people's entire paycheck to go to paying their taxes.)

But 20 years ago, paying for drinks with a card at a bar was relatively rare. (I know it's hard to believe, but it used to be kind of hard to get a credit card, and a lot of bars didn't even take them.) Since there was no exact way of tracking how much cash (including a jar or two of coins from cheapskates) your favorite bartender made in a shift, the IRS decided to base the bare minimum taxes she'd have to pay as a percentage of her total sales.

As Tim puts it, "Back when it was mostly cash as far as tipped employees were concerned, their responsibility was basically they had to claim 8 percent of their sales. Usually, you made over 8 percent, but by law but all you had to show was 8 percent. Now, most of the transactions are on credit cards, and the employee now has to claim all those tips."

Story continues on the next page.

In other words, if you and your friends drink $50 worth of drinks and tip $10 on your credit card, the Tax Man adds that $10 to your favorite bartender's hourly wage and taxes her accordingly. Twenty years ago, if you and your friends did the same thing, you probably paid in cash. You handed her three $20 bills, told her to keep the change as a tip, and didn't think twice. Since there was no record of exactly how much you tipped her, the IRS expected that you'd tip her at least 8 percent of $50. Instead of $10, that's $4. And that's probably what she reported.

Here's Tim again: "It was kind of the honor system. You could massage the numbers to work in your benefit, but that is not the case any more."


This practice was not only advantageous to the employee, but to the bar owners as well. Since business owners pay a portion of taxes for Social Security and Medicare, the less their employees claimed, the less they had to pay as well.

But don't think this means that wait staff were raking it in hand over fist. For any polite person who tips the customary 15-20 percent (and let's face it, 15 percent is pretty damn cheap), 8 percent might seem quite low, but you have to consider that percentage against the total sales for a given shift, and the fact that some people are ill-mannered assholes who don't know how to tip and should probably stay at home.

I remember times when the crowd was so cheap that the bartenders I worked with actually made less than what they had to report. Add tipping out barbacks, bus boys, and even your charming Door Guy, and 8 percent is a pretty reasonable low-end threshold. While it was possible that bartenders I knew when I first got into this ridiculous business were taking home a bit more than they claimed, it wasn't exactly a limo ride to Wall Street.

And what it definitely wasn't, TIPS, was owners "skimming" from their staff.

Do I think Tim could have been a lot clearer in that video? Sure. It's the sort of thing that only makes sense to people who've had to deal with it because they depend on tips for a living, which is why I've worked so hard to explain it here. While I don't agree with Tim on changing the minimum wage, he doesn't deserve to be called a thief.

TIPS, if you want to be pissed, there's plenty to be pissed about. Be pissed that many places now stick their servers with a portion of the processing fees when they get a tip on a credit card. Be pissed that there are still places that expect people to show up and not be paid until the manager feels like putting them on the clock, or stick around after closing time when they aren't getting paid.

Be pissed that bar and restaurant owners (Tim Mahoney included) are working to change the minimum wage law for tipped employees. Be pissed that in general, people are expected to make do with less and less because of someone's abstract idea of the "bigger picture." You want a barrel full of righteous indignation, I'm right there with you.

But I'm the sort of guy who believes that righteous indignation shouldn't be wasted on a misunderstanding.


Got a question for The Door Guy? E-mail [email protected]

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