Restaurants – How are you managing tips for staff from a tax perspective?

There are three likely scenarios where patrons will choose to pay for their meal in different ways. We set out below the tax implications of each of the three scenarios.

Scenario 1:

Tip / service charges paid by debit or credit card, handled by the restaurant and distributed to the staff;

In this case, where the tip amounts are distributed to staff the employer would have a PAYE withholding requirement via payroll in respect of the amounts received by the employees. These amounts are fully taxable in the hands the employees, however the obligation is also on the employer to apply PAYE, USC and PRSI.

Scenario 2: 

Tip / service charges paid by cash directly to staff by customers;

Similar to the above scenario the tips received by the employees are taxable, however the obligation is with the employees to report this income via an end of year tax return. The employer has no obligation to report these amounts via payroll and apply PAYE, USC and PRSI.

Scenario 3:

Customer pays for the meal and service by debit card, and the customer also requests a cash back amount – some of which may or may not be used to pay a cash gratuity;

Where a cash back is requested, the tax treatment is as per scenario 2 above. The obligation is with the employees to account for the tax on any income received and the employer has no withholding requirements in respect of the gratuity amounts given in cash to the staff.

To conclude essentially if the business as the employer has any part in collecting a tip then paye/prsi should be applied on the amount redistributed to staff.

If you have any queries in relation to this or any other tax or accounting queires please contact Maura Duffy, Partner at (01) 2915265 or email


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