Efforts are underway in Austria to introduce a uniform system for calculating tip allowances across the country, aiming to enhance transparency and legal certainty regarding social security contributions on gratuities. While tips themselves are not subject to income tax in Austria, employers and employees have been required to pay social security contributions on these additional earnings. The increasing prevalence of card payments has made it easier for authorities to track tip amounts, particularly within individual businesses, leading to retrospective social security payment demands in some cases.

Up to now, allowances for tips have existed only in certain regions and have differed significantly between sectors and locations. This has resulted in inconsistencies and at times, uncertainty for employers and employees alike. The Austrian government is now advancing legislation to establish nationwide, standardized allowances that will dictate the calculation of social security contributions applied to tips.

Legislative Progress and Political Positions

The proposed legal framework recently cleared a significant hurdle in the parliamentary process, having been approved in the Social Affairs Committee with support from several major parties. The new regulation will empower the Austrian Social Insurance Agency to set binding, sector-specific, and activity-based tip allowances, which will act as maximum thresholds for social security contributions. This standardized approach is intended to replace the current patchwork of partial and regionally varied rules.

Critics of the legislation, notably from the Freedom Party, have argued that the reform effectively introduces a new form of taxation on tips. They advocate for the complete removal of social security obligations on gratuities, characterizing tips as personal gifts that should not be subject to deductions. Despite this opposition, the majority coalition supports the reform as an important measure for improving clarity and ensuring fairness for both employers and employees.

Specific Allowance Proposals for Hospitality Sector

Within the hospitality sector, which is particularly reliant on tipping, social partners have already put forward concrete proposals regarding the values of these allowances. For staff directly responsible for handling payments, the suggested allowance would rise from 65 euros per month in 2026, to 85 euros in 2027, and then to 100 euros in 2028. Employees without direct payment responsibilities would have a lower allowance set at 45 euros per month for 2026 and 2027, increasing to 50 euros in 2028. Beginning in 2029, all tip allowances are to be regularly adjusted for inflation.

The Social Insurance Agency will remain responsible for determining the specific values of these tip allowances, with the possibility of adjustments as economic and sectoral conditions evolve. If new allowances for a specific sector are not set by a designated deadline, current rates will continue to apply until an update is made. The new law also introduces a limitation on retroactive claims, stipulating that outstanding social security contributions on tips can only be collected if a new allowance has been set for the relevant sector by the end of the following September.

Increased Transparency Requirements for Employers

Under these planned changes, employers will be obligated to provide their employees with detailed information about the distribution of collected tips. If the employer is responsible for distributing gratuities, they must inform staff about the allocation method by the end of each February for the preceding year. These measures are designed to foster greater transparency and improve compliance with social security regulations.

Supporters of the reform emphasize that the changes will provide a clear legal basis and reflect current economic realities by updating longstanding tip allowances. The government also expects that the reforms will help prevent large-scale retroactive social security claims, which have been more common since electronic payments have become widespread and tip amounts more easily traceable.

Opponents, meanwhile, continue to advocate for the complete exemption of tips from social security contributions, arguing that gratuities are personal tokens of appreciation and should remain untaxed. Suggestions have been made to explicitly designate tips as personal gifts at the time they are given, in order to avoid deductions.

As the legislative process moves forward, the planned standardization of tip allowances is expected to bring clarity and consistency to employers and employees throughout Austria, particularly in sectors where tipping represents a significant portion of income.