Question: Can a county office of education reimburse employees for amounts of money they claim were paid for tips or gratuity? It has been our procedure, not policy, to not pay for tips, which are viewed as a gift of public money. It has been suggested that it might be OK to pay if the board were to adopt a policy. The school attorney told an employee that reimbursing tips was OK, but no rationale was given.

Response: Thank you for your question regarding tips and whether they can be reimbursed to employees who pay tips when purchasing meals.

Many county offices and school districts reimburse tips when reimbursing actual (not per diem) meal costs. One rationale used is that tips are not considered gratuities or gifts. Rather, they are considered compensation for services. This is consistent with IRS regulations that impute tip income to servers who report no tip income. Some jurisdictions even permit tip income to replace the minimum wage required to be paid to employees. IRS regulations also require withholding of federal income taxes on estimated tips. These facts support the concept of tips as compensation rather than "gifts."

It is good practice for county or district boards to pass policy regarding the reimbursement of all travel expenses so that employees are aware of what can be claimed. For example, the policy could state 15-20% tip reimbursement. Another solution might be to reimburse based upon per diem amounts. No detailed reporting of individual amounts needs to be reported, except that each meal has a specified amount that will be reimbursed.