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Mr. SANDS. Well, Senator, if he is working for 30 people in a month, he must be a very good waiter in the first place. In the second place, he would need an agent, just the same as an actor needs an agent. And the agent in this case is the union. The union does all the collecting of the salary and the tips, and the waiter or waitress doesn't even have to go after it. They serve the black coffee and they get on out. They go on up to their club or the union and collect the money on a certain
day every week. Senator KERR. Does the union then make the payment of the contribution ?
Mr. SANDS. Beg pardon?
Senator KERR. Does the union then make the payment of that contribution to the Government?
Mr. Sands. The union?
Senator KERR. Does it make the social-security contribution for the employer and the employee in those instances !
Mr. Sands. Oh, no. For the simple reason that no one, practically, now, for tip employees, reports any social security. That is our complaint.
Senator KERR. Would you, under H. R. 6000?
Mr. SANDS. Would it? Well, it wouldn't make any difference if it did.
Senator KERR. But does it?
Well, it might at that, because the employer would have to add 142 percent on the tips, and we just deduct the 11/2 percent.
Senator KERR. With reference to the thing that you referred to a while ago, which started the questions, which was that under H. R. 6000 the employee within a certain number of days after the quarter submits to the employer the amount made in gratuities for the quarter, adding 11/2 percent, and that the employer then puts his contribution in and sends it to the Government, would that be taken care of by the union, which you described as being the agent that receives the money for the employee and that pays it to the employee for the employer?
Mr. Sands. Could be. We take care of everything now.
Senator KERR. Do you think that ought to be put into the law, then ?
Mr. Sands. If you want to put something into the law that will recognize the Hotel and Restaurant Employees and Bartenders Union as the bargaining agent in all of the hotels and restaurants of the country, we are perfectly satisfied.
Senator KERR. Would you not be willing for the law to put upon you the burden of making those reports in such instances where the employees and the employers have already recognized or do recognize you or any other union for that purpose?
Mr. SANDS. No; we wouldn't. Because as I understand this law now, the obligation on the employer is to report it and pay on it once the employee has reported and paid on the tips to him.
Senator KERR. But you told the Senator, though, that the employee did not do that, under these arrangements; that he did not have more than one person to see; that if he had 10 employers or 20, the union took care of all that.
Mr. SANDS. Senator, we would be perfectly willing to add to the collection the 112 percent of tips. But the union does not make the employer's report to the Government. So the only thing we could do, then, at the end of the quarter or 10 days after it, would be to send back to the employer a list of the employees, with our check for the amount covering them. That is the only thing that we could do, because under H. R. 6000 the responsibility of reporting the tips, once the employee has reported to the employer and paid on it, is on management. "We would be perfectly willing to go along with management and help them out and do their bookkeeping and do their collecting and then remit it back to them so that they can remit it to the Treasury. We are perfectly willing to do anything reasonable that will insure these people, whose living is partially made on tips, building up that fund in social security so that they will have something worth while when they are 65 or when they die, and it won't be a case of their having $10 coming
I could recite you, if we had the time, where widows of bellboys in Washington didn't have over $12 to their credit in the Social Security fund, and cases where waiters and waitresses had so little to their credit that it wasn't worth going after. In one case it was $36, and the man didn't leave any next to kin. We would have to take out letters of administration in order to collect the money, and that would have cost us more than was in the fund for that individual. The purpose of the act was to insure the worker at death something for the widow; and at 65 something to retire on, so that he could hold his head up and not be a subject of charity. And here is this great amount of tips that is collected with the knowledge of the employer. And they like it. Don't let them kid you. They like it. They are not paying on it. And the employee is not paying on it. So the purpose of the Social Security Act, so far as these people are concerned, has been circumvented.
Now, all we ask is that the employer pay on the tips. They are taken with his knowledge. You never see a hotel man fire the employee for taking the tip. They are hired with that knowledge. The waiter knows, when he goes to work in a house like the Willard or the Netherlands Plaza in Cincinnati, that he is permitted to take tips. In the old days he used to have to split those tips.
The CHAIRMAN. We understand that you favor the House provision.
Senator Tart. Mr. Sands, there is a point on which I would like to get a little more exact picture. Do you have a contract for the Mayflower or the Willard ?
Mr. SANDS. Yes.
Senator TAFT. And is it worked on an hourly basis or a weekly basis?
Mr. Sands. It is worked on a weekly basis. The workweek is 48 hours.
Senator Taft. Forty-eight hours. And then is it a base rate per hour!
Mr. Sands. No, per week.
Senator TAFT. And that rate is how much per day, say, at the Willard? Or the Mayflower?
Mr. SANDS. I imagine that the scale in the Mayflower would be about $4 a day, based on a day rating. And, of course, there is a deduction.
Senator Taft. Four dollars a day. And then you said, I think, in your testimony, that they report $4 tips.
Mr. Sands. That is right.
Senator Taft. So roughly speaking it is half-and-half. That is the picture I wanted to get.
Mr. Sands. That is right.
Mr. SANDS. That is right. Of course, you understand, Senator, that the tips in the Mayflower are a little bit larger than they would be in Childs; not to say that Childs' food isn't good.
Senator TAFT. Do hotel workers in that classification receive their meals?
Mr. Sands. The worker in a hotel who has anything to do with the preparation or the serving of food receives his food.
Senator Taft. Three meals, or two?
Mr. Sands. Two meals. And for that, I think it is 60 cents a day or 30 cents a meal, or something like that, that is deducted from their pay.
Senator Tarr. Oh, that is deducted from their pay?
Senator Taft. I see. But roughly speaking, would you say generally in fairly good hotels it is half salary and half tips? The waiter's income?
Mr. SANDS. Yes. We do our best, Senator, believe it or not, to educate our people that they should report honestly and fairly on income tax. We do that.
Senator MILLIKIN. You have got me into a great state of confusion, because I have always favored not taxing the waiter for income tax purposes on his tips.
Mr. Sands. Why not?
Mr. Sands. It is part of his earnings. You would not get a waiter to work in the Mayflower Hotel--not that I am particularly boosting the Mayflower, although Mac is a good fellow—for $3.40 a day and his meals.
Senator MilliKIN. Oh, I want him to get the tips. I want him to get those, but I thought they were gratuities. And I have always been against considering them as included in income because they were gratuities.
Mr. Sands. No; it is his income. As a matter of fact, we are fighting it out with the Treasury Department now. They even charge the waiter withholding tax on the value of the meals that he eats in the hotel.
Senator KERR. I would like to ask you what price they put as the value of the meals. Mr. Sands. Well, under the union contract, I think
we recognize 30 cents.
Senator KERR. Thirty cents. You think that is about a fair price for the average meal they serve? (Laughter.]
Mr. Sands. No. No; but, Senator, historically
Senator KERR. You think the waiter gets a little bit better of that deal ?
Mr. Sands. Yes, I think he does. And I think he is entitled to it. And I don't think he should pay anything for it. Because it is a, part of his job. And we have already got a ruling from the Treasury Department.
Senator KERR. I just wanted to ask you that one question.
Mr. SANDS. Where the meals are served for the convenience of the employer, there can't be a withholding tax withheld on it. Wouldn't it be fine if you went into the Mayflower and sat down and wanted Joe to wait on you and they told you Joe had to go out to get something to eat?
Senator Tart. If a report is made on this bill, would that be presumptive for income-tax purposes, too?
Mr. Sands. Yes.
Senator Taft. And would the employer then have to deduct under the withholding part of the income tax on the same basis? Mr. Sands. No. He wouldn't. Senator Tart. The withholding tax does not apply to tips? Mr. SANDS. No.
Senator Taft. Well, if you are going to withhold on this tax, why not also withhold on income tax, while we are about it?
Mr. SANDS. We wouldn't have any objection to that.
Senator MILLIKIN. I would like to ask one question. When you serve a $500-a-plate banquet, how much does the waiter get per plate! Or make it $100.
Mr. Sands. Us Democrats understand $100 a plate more than we do $1 or $500.
Senator MILLIKIN. Oh, the more you add the ciphers, the better you understand it. But let us get to the $100. How much does the waiter get?
Mr. SANDS. My understanding is this. Let's take the Democratic dinner, over here. My understanding is that the hotels for serving that got $7.50 a person. So they would get the tip on $7.50, not on the $100. Even the Government doesn't get that. (Laughter.]
Senator MILLIKIN. It seems to me they were squeezing down on the boys a little, there.
The CHAIRMAN. Thank you very much for your appearance.
(The following letter was later submitted for the record :)
AMERICAN HOTEL ASSOCIATION,
New York, N. Y., February 20, 1950. Hon. WALTER GEORGE, Chairman, Senate Finance Committee,
United States Senate, Washington, D. C. DEAR SENATOR GEORGE: May I tender this brief supplemental statement, correcting some of the statements made by the witness who followed me, Mr. Charles E. Sands, representing the Hotel and Restaurant Employees and Bartenders International Union.
It would be our hope that this brief statement might appear in the record of the hearings, immediately after Mr. Sands' and my testimony, since both our statements had to do with the application of the social-security tax on tip income.
(1) Mr. Sands made a great point of the fact that the tip income of service employees in hotels and restaurants has been well established in many States for purposes of assessing the tax for unemployment compensation and workmen's compensation purposes.
I would like to point out, however, that under these State statutes the unemployment insurance tax and workmen's compensation assessment are paid wholly by the employer; and his liability is based upon the amount of tip income which is declared to him by the employee. In H. R. 6000, however, a different question is involved. First, the liability of the employer is based on the actual tip income, and no method is provided in the bill for ascertaining the true amount of the tip income. Furthermore, the bill requires the employer to remit the employee's 112 percent tax on tip income and to withhold the Federal income tax based on this tip income; but this tip income never comes into the possession of the employer.
I said in my statement that this issue has not been satisfactorily resolved in any single State, to our knowledge. In New York State, for instance, the unemployment compensation tax is assessed against the tip income of a service employee if that employee makes a declaration of tip income to his employer. If he does not do so, the employer may make an estimate of the tip income, and pay the tax upon that sum. However, in this instance, the employer pays the whole tax. There is little reason for the employee to challenge this declaration, since it means no liability to himself for this particular tax.
In Connecticut, as we understand, it is optional with the employee whether he declares tip income, but if he does so declare it, then that sum is subject to assessment for unemployment compensation and workmen's compensation, as part of his wages. But again we emphạsize that it is entirely optional with the employee.
In my own State of Ohio, as an example, tips are not included for purposes of unemployment insurance. For workmen's compensation we do report what the employee chooses to declare. Some declare figure, and others do not. But in every case it is purely a nominal figure. For example, the waiters in one of my company's hotels report about $8 a week, when we know their daily tips exceed that amount. The value of meals is included for both unemployment insurance and workmen's compensation.
(2) Mr. Sands also minimized (to say the least), the average tip income of service employees. He estimated that even in the finest hotels in Washing. ton, D. C., the top tip income in a day was $5. We think this is extremely low, as shown by the example I gave to the committee in my testimony this morning.
(3) Mr. Sands also claimed that the employees' union, as it operates here in Washington, D. C., collected and computed the employee's earnings from tips and remitted for him the social-security tax to the employer. If that is done here in Washington, I think it is a very isolated case, and I know it is not common practice.
Presumably Mr. Sands is arguing that the entire industry could be unionized, and thus simplify the payment of this tax. We question whether the committee is willing to approve that section of the bill for this purpose.
(4) Mr. Sands also left the feeling with the committee that nearly all banquets, luncheons, and other meal functions are computed with a round figure, including gratuities. It still is the occasional function where the tip is handled in that manner, and it is not the regular practice.
I sincerely hope that these statements will prove pertinent to the committee's consideration of this problem. I am deeply grateful for the courtesies shown me this inorning when I appeared before your committee. Respectfully,
DANIEL J. O'BRIEN. 60805-50-pt. 3