Just how much are waiters and waitresses earning in tips? And are they paying the corresponding taxes? An audit of 145 servers in 4 restaurants in St. Catharines, a small community on the Niagara Peninsula, Ontario showed that they’re paying much less than they should. The audit was conducted by the Canada Revenue Agency and was done on two years’ worth of income on the servers.

The auditors found that every server has concealed a portion of their tips from taxes, with around half of them reporting that they earned no tips at all! Collectively, around $1.7 million in tips and gratuities are unreported—that’s around $12,000 for every server.

Restaurant insiders encourage servers to report only 10% of their wages as tips. That’s despite the fact that tips comprise around 100% to 200% of the wages of servers. On average, a server reports a mere 5% to 10% of the actual tips and gratuities.

The St. Catharines’ audit was only one of the many projects that were being conducted to identify the underground economy, which is proving to be detrimental to national revenue. The reason for zeroing in on the hospitality industry is that the tax agency has long known that tax-reporting abuse is common in the industry. In 2006, a survey among 96 hospitality workers showed that they were encouraged by their tax accountants to report only a portion of their tips. After all, they do not stand a “real risk of getting caught”, as very few hospitality workers are audited.

In the end, the 145 servers paid around $1,553 in extra income tax—which is viewed as respectable considering the special credits that were given to servers, most of whom were students. Canada Revenue Agency hopes that what they did will result in a word of mouth effect, which will prompt servers across the country to report their extra income in wages and gratuities.

Do you actively encourage your servers to report their income in wages or gratuities? Or do you let them work their way around the law?