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GrataSoft™ Solutions turn tip compliance into strategic advantage - minimizing tip tracking and IRS tip program administration while minimizing audit downside.

John Marshall
EAT, Inc, PO Box 144
5 Crescent Ave, Bld G
Rocky Hill, NJ 08553
tel: 609.786.1004
fax: 609.921.7067

Patent Pending tools and processes, which increase value through enhanced operational compliance and material reductions in administrative burden.

Planning your transition into Tip Compliance

By John Marshall

You’ve heard it before – timing is everything, and transitioning your organization into tip compliance is no exception. Many of the tip programs have either limited access or single entry points throughout the calendar year which will likely be instrumental in determining which program to initially select.

TRAC, for example, begins the first day of the quarter following the agreement being signed. Getting an agreement in front of you is not an overnight task either. Plan well in advance of the quarter end to allow enough time to meet with your local IRS agent and in turn allows them to get all their necessary signatures.

ATIP, the newest of the tip programs has a single entry point, January 1. Although the program allows a little latitude on actual startup, this is based solely on your pay period length and first pay date in the New Year. There is however no requirement to meet with an agent, nor agreement to be signed. On February 13, 2007, IRS extended year one election until June 30, 2007.

By far the most time consuming part of any transition into tip compliance is the cultural and administrative changes necessary to keep up with the program requirements. Whether you are choosing an automated solution, or planning to build yourself a set of spreadsheets to assist you in the process, be sure to have these purchased (or built) well in advance of your live date to allow plenty of time to setup and troubleshoot the results against your actual operational data. I normally recommend at least one month for this phase, and potentially more if holidays or certain peak periods are in between.

Selecting a Method:

Your solution should be one that is self-documenting, simple and return the same results each time it is used, no matter who uses it.

If you plan to use a spreadsheet to administer your plan, make sure that the data elements you’ll need are readily available from your POS system. Make sure that the data produced does in fact meet your needs, and includes the details you want, and not those you don’t. Separating gratuity from tip sales, take-out from in-house, and non-tip from charged receipts can be the most elusive. Once you have identified the reports and data columns to use, make sample templates and clearly indicate which data to use, marking each “A”, “B”, “C”, etc. Add these notations to your spreadsheet template. If you plan to use your spreadsheet for data storage as well as calculations, I’d recommend placing the historical data on a separate page (or tab) from the data entry sheet. In this way you can maintain a data column for each payroll, and even include a macro or two to clear your template and insert a new column for each subsequent period.

If you have a substantial number of employees, high turnover, or a POS system that does not want to reveal its secrets, I’d recommend looking into a dedicated a tip compliance application. These can automate the compliance portion, but perhaps even more important, the POS polling, archiving, and present and future reporting. Often these applications can provide many features up and above just payroll calculations, such as 8027 creation, tip and gratuity allocation and minimum wage testing.

Plans Available:

There are primarily just two plans suitable for the general business establishments; TRAC and ATIP. Your move to tip compliance may include both programs based on program entry limitations and your present level of tip declarations.

TRAC is a superb plan to start the process with as it provides employer audit protections combined with the ability to enter compliance laterally and then increase compliance levels. TRAC is primarily an educationally based tip program relying on you, the employer, for regular reporting feedback (TRAC Summary) produced for each employee typically with each paycheck. The main intent and value to the IRS is that this points out to each employee, at regular intervals, their tipped performance of charged receipts vs. cash transactions as well as the benefits of increasing tip declarations to 100%. Yeah, right, you say, but don’t discount this just yet … there are many solutions within TipCompliance.com, which may make this possible. Examples of this are reallocating tip-outs to indirectly tipped staff, reducing gross sales with gratuity receipts and take-out sales, and ensuring that tip-outs are fully reported. I went through this process myself, and was surprised how fast and high tip declarations went once all these elements were working in concert. TRAC requires that you maintain a regular schedule of staff training on the benefits of 100% tip declarations at time of hire and at least once per quarter thereafter.

The ATIP program, active for the first time in 2007, is an ‘employer only’ program in that all the information needed to implement it is in the employers control and no information need be gathered from employees. The basis for the program is taking the previous year’s charged tip rate, reducing it by 2%, and distributing this pool across all employees based on their relative amount of sales or hours worked. These tip pool attribution ratios must be preset and applied uniformly. ATIP requires that an establishment take in at least 20% charged receipts and maintain a 75% level of program participation. When complied with, ATIP provides both employer and employee audit protection.

I have intentionally neglected TRDA and EMTRAC, as these are not garden-variety plans. With a TRDA the IRS sets specific minimum target tip values, which must be maintained. These targets are often specific to task and meal period. Typical users of such programs are large high profile establishments, typically in the gaming industry. EMTRAC on the other hand is an employer designed plan derived from TRAC. In those instances where procedure or data availability are unable to meet program requirements, EMTRAC provides employers with the ability to propose to the IRS alternative means of accomplishing the same goals with available resources.


Implementation of TRAC, EMTRAC, or TRDA is virtually impossible without a POS system distilling and providing consolidated values. Some have managed with spreadsheets and credit card machines which track and total transactions by server. Without automation, IRS suggests that 4800 hours a year may be required to administer the TRAC program.

ATIP has far more potential to be implemented using spreadsheets, but pay period by pay period totals are still required and therefore without a POS, the IRS estimates ATIP will require 3800 hours annually to administer.

As with any tip program the benefits of implementing an automated solution like that offered by GrataSoft Solutions may prove invaluable. Their software (reviewed here) reduces the stated administration requirements from thousands of hours a year to just minutes a day when used with a POS interface. Even when entering data manually, such a program manages all reporting, data integrity, employees and other compliance requirements.

Within TipCompliance.com you will find many additional articles which go into far more detail on each topic addressed. If you should find yourself with a question unanswered, a Q&A section allows you to post and receive answers.

Mr. Marshall is the owner of Main Street Gourmet Eatery and Bakery, Main Street Fine Catering, and Main Street Euro-American Bistro and Bar. He is president of GrataSoft Solutions, developer and publisher of Grata Restrateur and Grata Persona; patent pending solutions for implementing, tracking and managing tip policy, including IRS TRAC, TRDA and EmTRAC Tip Program compliance automation for businesses and individuals. For more information, please visit GrataSoft.com.