Safety and OSHA News

Should tip income be included in workers’ comp calculation?

A worker’s pay consisted of hourly wages and tips received from customers. After he was injured on the job, his workers’ comp was calculated using only his hourly pay. Should his tips be included?

Asen Negriev was a bartender at the Big Inning Sports Pub in Las Vegas. One day he slipped and injured his back when walking into the pub’s kitchen.

He made $8.00 an hour plus any tips he received.

Big Inning’s workers’ comp insurance company didn’t include his tip income when it calculated his comp payments.

Negriev appealed that decision. The insurance company said since the bartender hadn’t reported the tips for federal income tax, they shouldn’t be included in calculations for workers’ comp.

But Negriev was able to show that even though he didn’t report the tips for tax purposes, he did report them daily to his employer at the end of each shift.

Initially, a hearing officer agreed with the insurance company that Negriev’s comp payments should be based only on his $8 hourly wage because his paychecks didn’t indicate he had declared his tips to Big Inning as required by law.

Negriev appealed. An appeals officer reversed the ruling, finding Negriev had faithfully reported his tips to Big Inning, but the pub failed to include the tips on his paychecks or declare them to the IRS.

The insurance company took the case to a state appeals court which upheld the appeals officer’s decision, and then to the Nevada Supreme Court.

Average monthly wages should include tip income only if the IRS has taxed the tips, according to the insurance company’s point of view.

But the state’s highest court disagreed. “Under a plain reading of the statute, we conclude that [the law] requires a workers’ compensation carrier to include tip income in an employee’s average monthly wage calculation if the employee reported the tip income to his of her employer,” the court wrote. “Whether an employee actually paid taxes on the tip income is irrelevant.”

So the Nevada Supreme Court said Negriev’s workers’ comp payments should be calculated using his hourly wage and tips.

What do you think about this case? Let us know in the comments below.

(Sierra Nevada Administrators v. Negriev, Supreme Court of NV, No. 57645, 9/13/12)

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  • PayingMyTaxesOnTime

    The appeals court got this one right. The tips should be included. Of course the sword cuts both ways and now that the tax evasion is out in the open, the employer should be required to collect the taxes due and make corrected payments to the IRS.

  • safetysusan

    I agree with the ruling. The employer was neglegent in not reporting the income and the employee should have known it needed to be, but he reported it as required. Sounds like the employer is short changing their employees. Employees are not normally familiar with laws. Employers should be.