Temer Passes Law to Tax Tips in Brazil
On March 13, Brazilian President Michel Temer signed Law 13.419. The new law, which seeks to regulate how tips in restaurants are distributed and taxed, is scheduled to go into effect in May.
The law defines “tips” as money given directly to waiters by customers as well as the untaxed service charge that many establishments add to bills. Though the term “service charge” implies that it is a mandatory tip for the staff, in reality this charge usually ends up going back into the pockets of the employer. Law 13.419 changes that by taxing employers for the service charge and then giving waitstaff the right to receive a percentage of the service charge after taxes are paid.
For bars and restaurants that add service charges to their bills, there will be two tiers of taxing:
- Establishments registered under the simplified tax system will be able to retain up to 20 percent of the service charge while the remaining 80 percent will go to the waiter.
- Establishments not registered under the simplified tax system will be able to retain up to 33 percent of the service charge while the remaining 67 percent will go to the waiter.
In either case, the law states that the percentage kept by the establishment must be used to cover labor and social security costs.
All Brazilians receive a federally issued work document when they start working (“carteira de trabalho”). According to the new law, employers will be responsible for registering both the employee’s salary and the average amount of tips received over a 12-month period in the employee’s work document. Employers who do not charge a service fee will have to add the average tip the waiter would have earned. An establishment that does not comply will have to pay a daily penalty to the employee totaling 1/30 of the average tip. For employers who repeatedly fail to comply, the penalty may be as much as 3/30.
Another aspect of the law puts employees of large establishments in a supervisory position to help ensure compliance. Restaurants and bars that employ more than 60 waiters should create an elected committee of employees that will be responsible for overseeing the proper collection and distribution of tips.
Brazil’s tax laws are complicated. However, the hope with this new law is that a bit more clarity will help ensure consistent and fair treatment when it comes to worker compensation.