TaxBandits Knowledge Base

What is the 10 Employee test?

The 10-Employee Test helps determine whether an employer must file Form 8027. Your business is considered a large food or beverage establishment if you typically employ more than 10 employees on a normal business day. To determine this, follow these steps:

1. Identify Two Key Months:
   • Identify the month in the previous calendar year when your establishment had the highest food and beverage gross receipts.
   • Identify the month when your establishment had the lowest food and beverage gross receipts.
      
2. Calculate the Average Employee Hours:
   • Calculate the average number of employee hours worked per business day for each of these two months.
      
3. Determine the Total Employee Hours:
   • Add the average daily employee hours from the highest and lowest-grossing months.
   • Divide this sum by 2 to get the final average.
      
4. Pass the Test:
   • If this final average is more than 80 hours, the business is considered to have employed more than 10 full-time employees on a typical business day.
   • In this case, you must file Form 8027.

This method ensures that the filing requirement applies to businesses where tipping is a significant part of employee income and the workforce is substantial enough to meet IRS reporting rules.