Tips Instead of Wages: When a Restaurant Must Make Up a Waiter’s Pay

Tips Are Wages, Not Money “Outside the Cash Register”

In 2018, an expanded panel of the National Labor Court ruled that tips received by waiters and other employees in the service chain in the restaurant industry are considered employer income and wages. This also applies to tips given voluntarily and whose amount was determined by the customer. Therefore, the restaurant may not claim that the waiter received money solely from customers and earned nothing from the employer for the shift. The waiter remains a salaried employee, not an independent recipient of donations.

When the Restaurant Must Make Up the Wage

Tips may be counted toward fulfilling the obligation to pay the minimum wage: the minimum wage does not necessarily have to be paid in addition to them. However, for the wage period, the employer must compare the amount of tips recognized as wages with the minimum wage due for the hours actually worked. If the amount of tips is insufficient, the restaurant must pay the entire shortfall in shekels from its own funds. Underpayment cannot be justified by an unsuccessful shift, an empty dining room, or the fact that customers left few tips.

What Must Appear on the Payslip

Tips must appear on the payslip as part of the wages, alongside the hours worked, the amounts accrued, and the deductions. The amount on the payslip must match the restaurant’s actual records and must not be an arbitrary figure that allows it to formally show payment of the minimum wage. In the event of a dispute, the cash-register and accounting records, distribution of the shared tip pool, shift reports, and actual payments are examined. Paying part of the money in cash without listing it on the payslip may reduce the official wage and the rights linked to it.

Pension, Vacation Pay, and Insurance Payments

If tips are recognized as wages, they are included in the basis used to calculate pension contributions and other earnings-dependent rights, including vacation pay. The employer must also take the official wage into account when reporting to the National Insurance Institute. It is not permissible to show only a low base wage on the payslip and define the remainder of the regular income as cash that is not taken into account. Special attention must be paid to the contract terms: using part of the tips above the minimum wage for the employer’s mandatory payments requires clear agreement and cannot cancel rights established by law.

How Tips Affect Severance Pay

Tips that constitute wages cannot automatically be excluded from the calculation of severance pay. In the “Kol Zchut” guide, the basic principle is described as multiplying the monthly wage by the number of years the waiter worked. The final result may be affected by the payment method, the duration of employment, wage fluctuations, and amounts already deposited toward severance pay. The court will examine not only how the payment is labeled in the contract but also the actual regular earnings as reflected in the documents.

FAQ

Sources

• Official Review of the National Labor Court Ruling
• Supreme Court Judgment in Case 5967/10
• Guide to Waiters’ Rights — “Kol Zchut”
• Knesset Materials on the Regulation of Tips
• National Insurance Institute Circulars for Employers

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