Bartender's untaxed tips included in calculation of average wage

In Nevada, a worker's average monthly wage calculation includes the untaxed tip income that he reported to his employer.

Case name: Sierra Nevada Administrators v. Negriev, No. 57645 (Nev. 09/13/12).

Ruling: The Nevada Supreme Court held that a bartender's average monthly wage calculation should include his untaxed tip income that he reported to his employer.

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What it means: In Nevada, a worker's average monthly wage calculation includes the untaxed tip income that he reported to his employer.

Summary: A bartender for a sports pub slipped and fell while entering the kitchen. He injured his back and sought workers' compensation benefits. His compensation included his hourly pay and tips received from customers. The bartender consistently reported any tip income to the pub at the end of each day. The pub did not include his tip income in his paychecks for tax purposes. The bartender also did not declare his tips as income when completing his own taxes. Therefore, he did not pay taxes on any of his tip income.

The pub's workers' compensation carrier accepted the claim but refused to include the bartender's tip income in its calculation of his average monthly wage because he did not pay taxes on the tips. The bartender appealed the carrier's calculation of his average monthly wage. The Nevada Supreme Court held that the bartender's average monthly wage should include his untaxed tip income that he reported to the pub.

The court said that the statute required carriers to calculate compensation for a worker based on wages paid by the employer plus the amount of tips reported by the worker. The employer was required to make a copy of each report the worker filed regarding his tips to report the amount to the Internal Revenue Service. The court concluded that a carrier was required to include tip income in a worker's average monthly wage calculation if the worker reported the tip income to the employer. Whether a worker actually paid taxes on his tip income was irrelevant to the average monthly wage calculation.

The carrier claimed that the court's interpretation provided a windfall to the bartender because he never paid taxes on his tip income. The court disagreed, explaining that the bartender's tax liability remained the same.

Read more at the WorkersComp Forum homepage.

November 15, 2012

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