Tips rules affect employees & businesses

Tips restaurant bar moneyTips. Photo:

Altered tips rules can affect both employees and businesses

If altered tax rules cause employers to refuse employees from receiving tips, it can have major consequences for the employees, an expert points out.


The Tax Directorate proposes that employers from 2019 must report, prepay tax and pay for social security contributions on all tips received by employees. The consultation deadline for the proposal is on Wednesday.

– Employers can now refuse employees to receive tips, in order to reduce the cost of employer’s social security contributions. – Then the employees will experience a significant loss in income, says financial adviser in the HR company ‘Infotjenester’, Espen Øren, to NTB.

He points out that a waiter who has 230 working days a year, and on average receives NOK 500 in tips per shift, will lose NOK 115,000 in annual income if that is removed.

– In that case, it may result in employees requiring renegotiating of their wage terms, Øren points out.

More expensive for the companies

The core of the proposal is that tips should be treated on a par with regular salary. There has previously been not been the practice for an employer to report, deduct tax and pay employer’s social security when the waiters receive tips directly from customers.

If this is now made taxable, it means that the employer must not only deduct tax from the amount but also pay 14.1 per cent in employer’s fees.

– We are skeptical to impose employes to pay employer’s contributions on benefits that customers provide directly to employees. Tips are also given in cash, and this it is therefore difficult for the employer to follow up on, says Øren.

In its consultation statement, Infotjenester has nevertheless concluded that it is appropriate to impose an employer’s obligation to pay the employer’s contribution on tips, to avoid too many exceptions to this obligation among other reasons.

Acknowledges losses

The Tax Directorate acknowledges that the proposal for total reporting of the gross amount that a tips constitutes will be less profitable for employers than within the current system.

– This because, with the changed rules, they have to pay social security contributions on the part that makes up the total remuneration received by the employees. This can lead to wage pressure, not in the least because the employees with total taxation in place will be left with less of the tips money than before, is stated.

But there can not be an argument against a new solution that “previously unaddressed funds are now being taxed, the directorate argues.

The Trade Unions (LO) supports the proposals from the Tax Directorate and writes in its consultation reply that “LO acknowledges that tips have always been taxable, but the practice of tax payments has been inadequate.”

The other affected Trade Union (Fellesforbundet) likewise supports the proposals.


© NTB Scanpix / #Norway Today