Untaxed tips must be counted toward bartender's comp benefit: Nev. high court

Determining the amount of workers compensation benefits owed to an injured bartender must include the untaxed tips he received and reported to his employer, Nevada's Supreme Court has ruled.

The Thursday ruling in Sierra Nevada Administrators v. Asen Negriev involved Mr. Negriev's claim for a back injury caused when he slipped and fell while walking into the kitchen of a Las Vegas sports bar. The ruling also involved a Nevada law that requires insurers to calculate an employee's average monthly wage according to the employee's wages and the amount of tips reported to the employer.

Mr. Negriev was paid $8 per hour in wages plus any tips he received, court records indicate. He consistently reported the tip income to his employer, but the Big Inning Sports Club did not include the tips on his paycheck for tax purposes. Mr. Negriev also did not declare the tips as part of his income to the Internal Revenue Service.

Sierra, the bar's insurer, accepted Mr. Negriev's workers comp claim, but did not include tips when calculating his monthly wage because he had not paid taxes on that money.

A hearing officer affirmed Sierra's average monthly wage calculation, reasoning that Mr. Negriev's wage history and paychecks did not indicate that he had declared his tips to the bar in accordance with Nevada law.

But a Nevada Department of Administration appeals officer reversed, ruling that Mr. Negriev faithfully reported his tips to his employer, but the employer failed to include the tips on his paychecks or report the tips to the IRS.

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The appeals officer ordered Sierra to include Mr. Negriev's tips as part of his monthly wages, and Sierra appealed. The Insurer then argued that under Nevada law, average monthly wages may include tip income only if the IRS has taxed the tips.

But the Nevada Supreme Court disagreed. It said the law requires a workers comp insurer to include tip income in an average monthly wage calculation if the employee reported it to his or her employer.

“Thus, whether an employee actually paid taxes on the tip income is irrelevant to the average monthly wage calculation, as long as the employee reported the tips to his or her employer,” the state high court ruled unanimously.

The court also said the record showed that Mr. Negriev had reported the tips to the employer. It said, therefore, that Mr. Negriev is entitled to a benefits level based on an average monthly wage calculation that includes tips he received.