A few tips on tips – BusinessWest
Breaking down the trickier aspects of Massachusetts laws
By Ludwell Chase and Amy B. Royal, Esq.
State and federal laws relating to minimum wages, tips, overtime, and the employment of minors are complicated. As a result, these are areas where mistakes are often made.
Employers, however, cannot afford these mistakes because the consequences of not complying with these laws can be very costly. In fact, in Massachusetts there are mandatory triple (triple) damages for violations of wages and hours laws relating to minimum wage, tips and overtime. This means that, if an employer is found in violation of state law, at a minimum, for every dollar that an employer does not pay in accordance with wage and hour laws, that employer will have to pay three times that amount. .
Under Massachusetts and federal law, employers are permitted to pay employees who receive tips an hourly wage below the minimum wage. It works by allowing employers to take a “tip credit” for a certain amount of tips that the employee earns. The employee must not earn less than the minimum wage when his tips and hourly wages are combined. Under federal law, the Federal Labor Standards Act, all hourly workers must be paid the federal minimum wage of $ 7.25. Tipping workers can be paid directly $ 2.13 per hour if their combined tips and hourly wage are at least equal to the minimum wage. In other words, employers can claim a “tip credit” of $ 5.12 per hour.
The United States Department of Labor (DOL) recently released a new proposed worker regulation that reinstates the 80/20 rule. This rule limits the time that tip workers can spend on activities related to tip-generating tasks, while their employers can still claim the tip credit. Tipping employees should spend at least 80% of their time directly performing tip-generating activities, such as serving customers, and no more than 20% of their time performing non-tip-generating activities, such as preparing tables. This rule was previously in force but was replaced by the DOL guidelines in 2018.
The 2018 guidelines provided that employers could claim tip credit if non-tip duties were performed concurrently with non-tip duties or if non-tip duties were performed for a reasonable period before or after tip duties. This new proposal returns to the 80/20 rule. In addition, the new proposal clarifies that, if an employee performs activities without tips for 30 consecutive minutes, the employer cannot pay the employee the hourly wage less than tip for that period.
For employers with tipped workers subject to the Federal Wages and Hours Act, this proposal is a good reminder to pay attention to these potential changes and their effects on the way they pay employees.
Pay attention to the menu
Massachusetts has its own complex laws regarding tips, minimum wages, and overtime. As a result, these are areas where it is easy for employers to make mistakes. Therefore, employers should pay special attention to ensure that they comply with both state and federal laws. As of January 1, 2021, the Massachusetts minimum wage is $ 13.50 an hour. Massachusetts is gradually increasing the minimum wage to reach a minimum wage of $ 15 by 2023. For now, employers can pay workers who earn at least $ 20 per month in tips an hourly wage of 5.55 $ with tip and benefit from a tip credit of up to $ 7.95 per month. hourly, for a combined minimum wage of $ 13.50.
The Massachusetts Tipping Act states that all tips must be given to employees whose work directly generates tips, and that employers and managers cannot retain any portion of their employees’ tips. The law applies to three categories of employees: waiters, service bartenders and service employees. Server employees include waiters, waitresses, bus waiters, and counter staff who serve drinks or food directly to customers or clean tables, and have no managerial responsibilities. Bartenders on duty prepare drinks to be served by another employee. Service employees include any other staff providing services directly to customers who usually receive tips but have no managerial responsibilities. For the purposes of this Act, managerial responsibilities are tasks such as making or influencing employment decisions, planning shifts or working hours of employees, and supervising employees.
Massachusetts law allows “tip pooling” agreements. This means that all or part of the tips earned by the employees of the servers are pooled and then distributed among these employees. Employers should be careful when administering a tip pool and ensure that only waiters, bartenders and service employees are paid from the pool. This means that managers and office workers like cooks and dishwashers cannot share tips. Even employees with limited management roles who also directly serve customers are not considered servers on days when they are in management duties.
When employees do not receive enough tips to make up the difference between the hourly tip wage and the minimum wage, employers must pay the difference. Employers are required to calculate the wages of tipped employees at the end of each shift, rather than at the end of the pay period. This forces employers to keep track of how much workers are receiving in tips for each shift. It may also require employers to pay their tipped employees additional amounts to compensate for slow shifts.
Under Massachusetts law, certain businesses, including restaurants, are exempt from paying overtime to their employees; however, they may not be exempt under federal law. If subject to federal law, employees working in restaurants must be paid one and a half times the minimum wage (not one and a half times $ 5.55 an hour) for all hours worked in excess of 40 hours per week.
Under the Massachusetts Tipping Act, if a restaurant includes a service charge, which is the functional equivalent of a tip or automatic tip, all proceeds from that service charge are to be paid only to those people. waiters, service employees or bartenders as a tip. . Employers can, however, charge a “house charge” or “administration fee,” which they can use or distribute at their discretion, but only if it is clearly indicated to customers that the charge is not a tip, tip. or service charge. for tip employees. Thus, any charges not intended to be tips and not paid only to tip employees should not be labeled as a service charge.
Food for thought
These complexities are particularly important to employers in Massachusetts, since the consequences of failing to comply with wages and hours laws can be costly and the penalty is the same whether the employer violated the law willfully or by reason. mistake.
Given the consequences of violations, companies whose employees are tipped should regularly consult their employment counselor to review their practices and policies to ensure compliance with federal and state laws.
Ludwell Chase and Amy B. Royal are with the Royal Law Firm LLP, a woman-owned business law firm; (413) 586-2288; [email protected]