Tipping: definition and legal basis
A tip, in its essence, is a token of gratitude given voluntarily by a customer, in the desired proportion, to the person providing a service as a sign of satisfaction with the service provided.
However, in the Dominican Republic, there are several laws that establish the obligation to include the tip in the bill of certain commercial establishments.
Specifically, Article 228 of the Labor Code states that: “In hotels, restaurants, cafes, bars and in general, in commercial establishments where food or drinks are sold for consumption on the premises, it is mandatory for the employer to add a ten percent tip to the customer's bills or accounts, or in another way that satisfies this perception, in order to be distributed entirely among the workers who have provided the service.”.
This topic was regulated in our legislation by Law No. 5432 of November 24, 1960 and by Regulation No. 6293 of December 24, 1960. As of May 29, 1992, the tip is regulated by articles 228, 229 and 230 of Law 16-92 and by articles 39 through 49 of its implementing regulation No. 258-93.
Tipping in the workplace
As we have seen, tipping is legally established in Article 228 of our Labor Code. This means that, in the commercial establishments described by the law, owners have the obligation to establish the necessary mechanisms to ensure that their customers contribute 10% of the value of their purchase to be distributed among all the workers who participated in providing that service.
With regard to this point, Article 197 of the Labor Code establishes that mandatory tips and voluntary tips paid by the consumer directly to the worker are not considered part of the salary.
In that sense, in the event of termination of the employment contract, the mandatory tip received by the worker will not be considered as part of the salary for the purposes of calculating labor benefits, that is, the payment of severance pay and the compensation for failure to give notice.
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It will also not be taken into account for the calculation of vacation time, profit sharing, or Christmas bonus.
- If you're interested in learning more about vacations, click on the following link: ANNUAL VACATIONS: An inalienable right of workers.
- If you want to learn more about profit sharing, click on the following link: Annual Bonus or Employee Profit Sharing: Analysis of the Labor Code and Regulation 258-93.
- You can find out more about Christmas bonuses at this link: THE CHRISTMAS SALARY, 13TH SALARY, EASTER BONUS OR DOUBLE SALARY IN THE DOMINICAN REPUBLIC.
However, in accordance with article 45 of regulation No. 258-93, when for any reason a worker ceases to belong to the establishment, he must be given the value that corresponds to him on that date as a tip.
In cases where the tip is included in credit accounts, the employer must provide the employee with proof of the amount owed for that concept.
The tip before the Social Security Treasury
With regard to Social Security, Article 17 of Law 87-01 of May 14, 2001, establishes as the contribution base for dependent workers, the insurable salary defined in Article 192 of the Labor Code.
Whereas, Article 197 of the Labor Code excludes from the concept of salary, both voluntary and mandatory tips received by the worker; consequently, they will not be included as a contribution base for the payment of the insurances established by Law No. 87-01.
In other words, neither mandatory tips nor voluntary tips are considered in the calculations of the insurable salary for the following insurances: 1) Old Age, Disability and Survivors; 2) Family Health and 3) Occupational Risks.
The tax implications of tipping
As we have already seen, tips are not part of the salary and should not be considered for the calculation of employment benefits, nor for vacations, Christmas bonus, or for the workers' share of the company's profits, nor for the salary subject to social security contributions.
However, in tax matters, from the joint interpretation of the provisions of Articles 268, 296 and 307 of the Tax Code relating to the concept of "income", as well as the income tax that must be paid by individuals who provide services in a dependent relationship, it is concluded that the mandatory tip received by the worker constitutes taxable income to income tax since it constitutes an income received by the worker for providing a service, regardless of its nature, origin or name.
Therefore, although it is true that the amounts received by workers as mandatory or voluntary tips are not considered as part of the ordinary salary for the purposes of labor law nor as salary subject to social security contributions, this does not imply that it constitutes non-taxable income for Income Tax (ISR) purposes for the worker who receives it.
That is, whenever the employee's ordinary salary, plus the tips received from customers through their employer, exceeds the annual tax exemption, it would be subject to the income tax established in Article 296 of the Dominican Tax Code.
Method of distributing tips among workers.
“Employers must adopt appropriate methods to ensure that mandatory gratuity payments are settled weekly or at any agreed time, to be distributed equally among the staff.”. (see art. 229 of the CT)
In accordance with the provisions of Article 39 of Regulation No. 258-93, the receipt of ten percent for the concept of the tip established in Article 228 of the Labor Code, will be distributed among all workers who provide service in the establishments described in said article, with the exception of those who belong to the administration area of said establishments.
The distribution of tips among the designated workers will be carried out in different proportions taking into consideration factors such as the level of qualification, and the greater or lesser impact of the worker on direct customer service, as well as the service area where the tip originates.
It is very important to highlight the legal mandate regarding who is entitled to receive income from legally mandated tips. Of particular relevance is the fact that administrative staff are not entitled to receive any income from this source.
This distribution will be agreed upon in each establishment by workers and employers and may be modified by mutual agreement. Similarly, workers and employers of the establishments listed in Article 228 of the Labor Code may agree that the percentage distribution of tips, approved by mutual agreement between workers and employers, will be carried out by establishing distribution criteria that take into account the percentage of tips generated in each of the establishment's service areas.
Obligation to keep a record of the values corresponding to the tip
It is the obligation of the owners, managers, representatives, officers or cashiers to specify daily, clearly and separately, the sum to which the ten percent corresponding to the tip amounts.
In that same vein, Article 41 states that: “The owners, managers, representatives or those in charge of establishments mentioned in Article 228 of the Labor Code, are obliged to keep a record, in which the amount of the bills or accounts and the percentage received as tips are recorded. This record may be consulted by the workers concerned when they so request.”.
Deadline for delivering tips to workers
In accordance with Article 42 of the regulations for the application of the Labor Code, “The funds received as tips will be distributed daily at the end of each workday in establishments with up to two employees, as referred to in the first part of Article 39 of these Regulations. In establishments with three or more such employees, the distribution will be made weekly, although advances against the funds corresponding to each employee for this purpose may be agreed upon. In either case, the employer and the union, or in the absence of the union, the employees, may agree on other terms.”.
In this sense, it can be observed that although it is true that national legislation stipulates that the mandatory legal tip must be distributed at the end of the workday in businesses with fewer than three employees and in those with more than three, it must be distributed weekly, nothing prevents that distribution from being carried out in longer periods by mutual agreement.
The most common practice is to distribute tips every two weeks, and very rarely, once a month. It's no secret that a significant number of employers misuse the legally mandated tips they are required to withhold for their employees.
It's important to emphasize that tips are not a tax for the benefit of the government, much less a direct benefit for employers. Tips are designed to increase the income of workers in the food service industry, who earn minimum wages lower than those in the non-sectorized private sector.
Payment of tips to workers who work as “extras”
In cases where waiters, bartenders, or other workers, regardless of their specific title, are employed as extras, they will only be entitled to the percentage of tips corresponding to the day or days they provided services. In these cases, the tip must be given to these employees at the end of their shift or, at the latest, the following day.
This does not apply to extra workers in maintenance areas, who will not be entitled to receive tips.
Similarly, no worker will be entitled to receive tips during the period of vacation, suspension, disability, leave or any other circumstance that prevents him from performing his work.
Payment of tips when sales are on credit
When sales are on credit, the legally mandated gratuity percentage should be collected immediately and distributed as established in Article 39 of these Regulations. If this is not possible, the distribution will be made once the accounts have been paid.
In the latter case, the owners, managers, representatives or cashiers will inform the waiters, bartenders or bar staff of the credit sales amounts and the conditions thereof.
According to Article 45 of the Regulations for the application of the Labor Code: “When for any reason a worker ceases to belong to the establishment, he must be given the amount corresponding to him as of that date as a tip. In cases where the tip is shown on credit accounts, the employer must give the worker proof of the sum owed for that concept.”.
Conclusion
As we have seen throughout this report, tipping is legally mandated in the Dominican Republic. The legally established amount is ten percent (10%) of the bill.
The owners and managers of the establishments listed in article 228 of the Labor Code are obliged to establish the mechanisms that facilitate the collection of the sums that workers must receive as mandatory tips and must define together with the workers the deadlines in which the funds obtained for that purpose will be distributed.
The legally mandated gratuity is not considered part of the salary and will not be used to calculate the amount of salary subject to social security contributions. However, any amounts received by workers that, when added to their salary, exceed the threshold exempt from income tax will be subject to said tax in the corresponding proportion.
Administrative staff are not entitled to tips. Nor are employees on vacation, suspension, disability leave, or any other leave that prevents them from working during their absence.
Workers employed as "extras" in the food service industry are only entitled to tips for the day or days worked. If these extras perform maintenance tasks, they are not entitled to tips.
The Supreme Court of Justice established through ruling No. 033-2021-SSEN-00765, that the amount of 10% established in article 228 of the Labor Code can only be applied to food and beverages that are consumed within the commercial establishment and does not apply to cases of "Delivery or take out".
Jurisprudential change regarding mandatory tipping[Yo]
The Third Chamber of the Supreme Court of Justice (SCJ), through a change of criteria, considered that the mandatory tip provided for in article 228 of the Labor Code should not be included in the bills for food and drinks that would be consumed in a place other than the business or store that sold them (“take out or delivery“).
According to ruling no. 033-2021-SSEN-00765, the mandatory 10% for tips will only be applied to the bills or accounts of customers who consume food or drinks in the shops or businesses that sell them, and the collection of said item cannot be extended to the amount of invoices for products purchased in hotels, restaurants, cafes, bars or other businesses where food or drinks are sold to be consumed in different places.
It adds that: “This is regardless of whether said food or beverages are transported by an employee of the business in question or whether the customer has paid a third party, whether a natural or legal person, under any modality or way, whose economic activity is to transport food or beverages produced by other businesses.”.
The Court considered correct the position taken by the National Institute for the Protection of Consumer Rights (Proconsumidor) that the 10% legal tip should only be required when the act of consumption takes place within the same establishment and not in cases of “delivery or take out”.
The decision was issued by magistrates Manuel Herrera Carbuccia, Rafael Vásquez Goico and Nancy I. Salcedo Fernández.
Download the full ruling:
[Yo] Copied from the official website of the Judiciary on September 6, 2021
