Marco works as a server in a Bologna restaurant. At the end of the month, he checks the POS statement: €200 of digital tips left by guests over April. Real tips, tracked, processed through the restaurant’s account, to be redistributed via payroll.
Question: how much ends up in his pocket once the tax system has its say? Unexpected answer: €190. Not €110, not €120. One hundred and ninety. Thanks to a provision introduced in Italy’s 2023 Budget Law and refined in subsequent years, tips received by hospitality staff can be taxed at a flat 5% substitute rate, instead of ordinary income tax which would have eaten half of them.
It’s one of the few worker-friendly fiscal provisions the sector has seen in the last 20 years. Yet it’s still poorly known — both among servers and among employers. In this piece we’ll cover how it works, who benefits, and what the restaurateur has to do to apply it correctly. If you don’t yet have a clear picture of the broader tipping culture in Italy, start with tipping in Italy: culture, stats and the evolution changing the sector.
The fiscal change: what the law says
The 5% substitute tax on tips was introduced by Italy’s 2023 Budget Law (Law 197/2022, art. 1 paragraphs 58–62) and then confirmed and refined in subsequent finance acts. The provision states that:
- Tips received by staff in hospitality businesses and accommodation facilities (restaurants, bars, hotels) constitute employment income, but are subject to a 5% substitute tax (instead of ordinary IRPEF income tax, which ranges from 23% to 43% plus regional/municipal surcharges).
- The favourable regime applies up to 25% of the employee’s annual taxable income. Anything beyond that is taxed under the ordinary regime.
- The benefit applies only to employees with annual gross income from employment up to €50,000 (a threshold gradually adjusted year to year — verify the current value in the latest Budget Law).
- Tips must be handled by the employer: it’s not about cash the server pockets personally, but tips received “through electronic payment methods” (POS) and then redistributed via payroll.
In practice: if a guest leaves a €5 tip on the POS, those €5 reach the restaurant, get declared as staff tips, and end up in the server’s payslip with only €0.25 withheld instead of €1.50–€2.
What changes for the employee: a concrete example
Back to Marco. Level-4 server under the Italian collective hospitality contract (CCNL Pubblici Esercizi), annual gross income around €22,000, take-home pay ~€16,000 (about €1,300/month).
Scenario A — Tips without the favourable regime (ordinary IRPEF):
- €200 gross tips/month = €2,400 gross/year.
- IRPEF taxation: marginal rate ~25% + regional/municipal surcharges, ~30% effective.
- Net on payslip: 200 - 60 = €140/month.
Scenario B — Tips with the 5% substitute tax:
- €200 gross/month = €2,400 gross/year (within 25% of €22,000 = €5,500, fully eligible).
- Substitute tax: 200 × 5% = €10.
- Net on payslip: 200 - 10 = €190/month.
Difference: +€50/month, +€600/year on the same tip volume. For a server on a modest base wage, that’s roughly one extra monthly payslip every two years.
And the employer doesn’t spend a euro more: the difference comes out of the tax authority’s pocket, not the restaurant’s.
What the employer must do
This is the operational point many restaurateurs underestimate. The provision existing isn’t enough: you have to apply it correctly on the payslip, otherwise the payroll consultant (or payroll software) treats tips as ordinary income by default.
Practical steps:
1. Track digital tips separately. The POS must allow recording the tip as a distinct line from the consumption sales. It’s not a detail: it’s the foundation for correct reporting. We covered this in digital tips and POS: the future of gratuity in Italy.
2. Define a redistribution policy. Collected digital tips must be redistributed to staff. The policy can be “everything to the server who handled the table” or “shared pool, distributed at month-end based on hours worked”. Important: the policy must be written, communicated to staff, and applied transparently.
3. Brief the payroll consultant. Tips must be entered on the payslip with the specific code “tips under art. 1 par. 58 L. 197/2022” (or the current contribution code) to activate the 5% substitute regime. Without this indication, payroll software applies ordinary IRPEF.
4. Verify the 25% threshold. On an annual basis, favourable-regime tips cannot exceed 25% of the employee’s taxable income. For a server on €22,000 gross, the threshold is ~€5,500 — meaning ~€460/month in eligible tips. Anything above: ordinary regime.
5. Keep documentation. In case of a tax audit, you must be able to prove that tips were actually received, redistributed, declared. POS statement + accounting entry + payslips are the minimum.
Pros and cons for the restaurateur
Pros:
- Zero cost: applying the regime generates no additional cost for the restaurant.
- Retention tool: helps retain staff, especially in a market where the cost of staff turnover is at historic highs.
- Transparency: everything tracked, declared, compliant. No grey zone.
- Compliance: aligns you with modern fiscal regulation and reduces audit risk.
Cons:
- Initial admin complexity: needs POS setup, a clear policy, alignment with the payroll consultant. Upfront time investment.
- Cultural resistance from staff: “old-school” servers might prefer cash tips to avoid even the 5%. Even if irrational (undeclared cash tips are tax evasion), it’s a real mindset that requires training.
- Additional POS costs: advanced POS systems handling separate digital tips can have higher commissions. To factor into the overall ROI.
Cash vs digital: the cultural dilemma
This is the knot the industry rarely faces openly. Cash tips, in Italy, are almost always undeclared: they reach the server, end up in a pocket, never pass through the tax system. For staff they’re “tax-free” (technically irregular). For the restaurant, they’re invisible.
With the rise of POS systems asking for tips at payment time, the scenario changes: the tip becomes traceable, declarable, and at that point the 5% taxation becomes the real argument to convince staff that digital tips also benefit them.
Concrete example. Server receives €200 in cash tips (off the books): keeps €200, but is fiscally non-compliant. Server receives €200 via POS with 5% substitute tax: keeps €190 clean, declared, contributing to social security (counts towards pension). The €10 “loss” compared to undeclared cash is the cost of legality — and in the medium term it’s worth more than the €10 forgone.
For many employees this argument isn’t obvious, and requires training. For the restaurateur, it’s also a leadership argument: you can position yourself as a “modern and compliant” employer, attracting serious staff and retaining collaborators. The topic ties tightly to restaurant staff retention strategies.
The current debate and future scenarios
By 2026 the provision is well-established, but the debate is still open on three fronts:
1. Raising the threshold. Several industry associations (Fipe, Confcommercio) ask to lift the 25% cap to 30–35%, in order to benefit staff with larger tip volumes (fine dining, luxury hotels). Possible evolution in the coming years.
2. Inclusion of declared cash. Today the benefit applies only to tips received via the employer (i.e., effectively via POS). Cash tips, if voluntarily declared by the server in their tax return, remain under the ordinary regime. Some draft bills propose extending the 5% to declared cash as well.
3. Alignment with service charges. Some venues are introducing a fixed 10% service charge (French/Anglo-Saxon model) that works as automatic staff supplement. The fiscal treatment here is different and less clear: it’s an actively debated topic at the legislative level.
Worth following the evolution. Digital tipping is one of the sector’s most dynamic topics.
In short
Italy’s 5% favourable tax on tips is one of the best fiscal news for hospitality staff in the last 20 years. For the employee it means +25–30% net on the payslip on the same tip volume. For the restaurateur it involves no additional cost, but requires minimal admin setup (POS + policy + aligned payroll consultant).
Above all, it’s a leadership and retention tool: it positions the venue as a modern, compliant employer, capable of making a real difference in the server’s payslip. In a market where finding and keeping staff gets harder every year, it’s worth every minute of setup.
Coperti is the reservation and floor-management system born from the experience of university students who worked as waiters during their studies. Among its features is digital tip tracking per server/shift/table, payroll-consultant export, and integration with leading industry POS systems. If you’d like to see it in action, write to us from the contact page — the trial is free and lasts 30 days.