Cosmetologist's failure to report tips for taxes slashes benefits
Case name: O'Connell's Case, No. 10-P-151 (Mass. App. Ct. 02/16/11).
The Massachusetts Appeals Court held that a cosmetologist's average weekly wage did not include tips she received from customers that were not reported for tax purposes.
What it means: In Massachusetts, a worker's average weekly wage does not include tips that are not reported for tax purposes.
Summary: A cosmetologist injured her shoulder while working at a salon. She regularly received tips from customers averaging $45 per day. The cosmetologist did not report her tip income for tax purposes to either the IRS or the salon. However, the salon tallied up the tips each employee received each day and distributed the money accordingly. The salon discarded its informal tallies each day and kept no permanent record of each employee's tip income. The cosmetologist sought benefits. The salon's insurer acknowledged liability but contested the amount she was due. The Massachusetts Appeals Court held that the cosmetologist's average weekly wage should not include her tip wages.
The cosmetologist argued that the salon had actual knowledge of the amount she received in tips each day even though it chose to discard the information at the end of the day. The court said that to the extent the critical issue was the inability to set accurate insurance rates, the employer's access to the amount of tip income for each employee went part of the way to satisfy that concern. The court also said both the cosmetologist and the salon were trying "to have it both ways."
The court considered the legislative definition of wages in determining unemployment benefits since the workers' compensation laws do not directly address whether unreported tip income should be considered in setting benefits. For unemployment benefits, tip income is not considered unless the income was reported for taxes.
Read more at the WorkersComp Forum homepage.
April 4, 2011
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