With the recent increase of minimum wage rates of pay in Massachusetts, the publishing of guidance from the Attorney General related to minimum wages for tipped employees, and the absence of an exemption from overtime for restaurant employees, things are a bit complicated these days relative to tipped employees.
Effective January 1, 2019, through December 31, 2019, Massachusetts (“MA”) minimum wage rates of pay are:
|Regular Minimum Wage||$12.00 an hour|
|Service Rate Minimum Wage Paid by Employer||$4.35 an hour|
Minimum wage and service rate minimum wage rates will increase as of 1-1-20 to $12.75/$4.95 respectively; as of 1-1-21 to $13.50/$5.55 respectively; as of 1-1-22 to $14.25/$6.15 respectively; and finally, as of 1-1-23 to $15/$6.75 respectively.
Massachusetts law allows tipped employees employed as wait staff to be paid an hourly cash wage by the employer that is lower than the MA minimum wage ($12.00 an hour as of January 1, 2019), by utilizing up to $7.65 per hour in tips as a “tip credit.” How this works is that the tipped employee must receive not less than $4.35 an hour (the service rate “sub-minimum wage”), so long as together with his/her tips, the employee earns no less than the minimum wage rate of $12.00 an hour. This means that the employer pays at least $4.35 an hour, and the employer is entitled to take a tip credit of the employee’s tips up to $7.65 an hour so that the employee earns $12.00 an hour. If the combined cash wages paid by the employer and actual tips do not at least equal the regular minimum wage, the employer must pay the difference. Importantly, tips over and above $7.65 per hour may not be used as a credit by the employer.
Where an employer seeks to pay tipped employees a sub-minimum wage and utilize a tip credit, the employer must inform the employee in writing. In addition, all tips must be retained by the employee and reported by the employee to the employer (in writing) or distributed through a valid tip-pool arrangement in accordance with MA law.
As defined by MA law, a “wait staff” employee, is a person, including a waiter, waitress, bus person, and counter staff, who: (1) serves beverages or prepared food directly to patrons, or who clears patrons’ tables; (2) works in a restaurant, banquet facility, or other place where prepared food or beverages are served; and (3) who has no managerial responsibility.
Tip Pooling Arrangements
MA law permits the use of a “tip pooling” arrangement by employers. This allows for the pooling of all or some portion of tips earned by wait staff employees, as well as service bartenders (defined as a person who prepares alcoholic or nonalcoholic beverages for patrons to be served by another employee, such as a wait staff employee) with the distribution among them in particular percentages. No employee who is not a wait staff employee or service bartender may share in the tips and no manager or owner may do so either.
An employer may administer a valid tip pool and may keep a record of the amounts received for bookkeeping or tax reporting purposes, and also to ensure that the employee is earning at least $12 an hour between the sub-minimum wage and the tips.
When to Undertake the Calculation as to Hourly Rates of Pay
When the new MA law increasing minimum wage rates of pay was signed into law in June 2018, to be effective January 1, 2019, it contained the following language that did not appear in the old law: “provided, however, that an employer shall calculate the amount required by clause (2) [which is that part of the law providing for the comparison between the amount of tips received, and the sub-minimum wage being paid, to ensure that the minimum wage rate of pay is being earned] at the completion of each shift worked by the employee.”
There was no explanation of what this new language meant.
The Attorney General’s Guidance Clears Up The New Language (And Muddies the Waters)
According to the Attorney General’s recently published guidance, the added clause means the employer must compare the sub-minimum rate paid to, plus tips earned by, the employee to the required full minimum wage (presently $12 an hour) at the end of every shift. If the combination of sub-minimum rate paid, plus tips earned, is less than the minimum wage the employee should have earned for that shift ($12.00 an hour), the employer must pay the difference. This assessment must be calculated on a shift-by-shift basis. That is, tips earned in one shift or in one day in excess of the minimum wage cannot offset a shortfall on a second shift in the same day or in another day in the workweek. Any minimum wage differential amount needed to make up any shortfall must be included in the employee’s next regular paycheck.
The Attorney General offers an example of a restaurant server who is paid the sub-minimum rate and works a 5-hour shift on Tuesday along with a 5-hour shift on Saturday. The employee earns $20.00 in tips on Tuesday and $100.00 in tips on Saturday.
For Tuesday, the employee is paid a sub-minimum rate of $4.35 x 5 hours = $21.75. The employee received $20.00 in tips for a total of $41.75. However, the minimum wage is $12.00 x 5 hours = $60.00. The difference to be made up by the employer is $18.25 ($60.00 – $41.75).
For Saturday, the employee is paid a sub-minimum rate of $4.35 x 5 hours = $21.75, and earns $100.00 in tips = $121.75. This sum is greater than the minimum wage ($12.00 x 5 hours = $60.00).
Even though the employee was paid well above minimum wage for the week as a whole, each shift must be examined separately. Thus, the employee is owed an additional $18.25 – the differential for Tuesday – in that week’s paycheck even though the employee made that amount up (and then some) on Saturday.
Employers covered by both MA and federal law must comply with the law that is more generous to the employee. Typically, that is MA law where minimum wages are involved.
The sub-minimum rate under federal law is $2.13 an hour and federal law permits an employer to take a tip credit, so long as the employee earns $30 a month in tips, to make up the federal minimum wage rate of pay which is $7.25 an hour. Under federal law, assuming the sub-minimum rate was used, the tip credit could be as much as $5.12 an hour.
What About Overtime?
Overtime issues were (more) confusing and (more) convoluted until the federal Department of Labor published changes to its regulatory guidelines in late 2016.
Based upon the MA minimum wage, sub-minimum cash rate, and the overtime rate, the calculation described below is how overtime for service employees, including wait staff, will work under MA law and federal guidelines:
|Sub-Minimum Rate Paid:||$4.35|
|Tip Credit Earned/Used:||$7.65|
|Total (Must Equal Minimum Wage):||$12|
|Overtime Rate:||$18 (1.5 times Minimum Wage)|
|Less Tip Credit Earned/Used:||$7.65|
|Overtime Rate to be Paid on Hours >40:||$10.35|
An example of how the above would apply to a wait staff employee who worked 50 hours in a workweek is the following, which assumes the employee earned at least $30 a month in tips:
Cash Wage Paid/Tip Credit Taken for all Hours
$4.35 sub-minimum cash wage + $7.65 tip credit = $12 (minimum wage rate)
Amounts Owed for 50 Hours of Work
$480 (40 hours straight time at $12 an hour), plus
$180 (10 hours at time and a half – $18 an hour)
$660 Total Due
$217.50 sub-minimum cash wage paid for 50 hours
$382.50 tip credit earned/credited for 50 hours
Difference Owed to be Paid by Employer
Why is OT Owed?
MA law provides that employees employed “in a restaurant” (which would include wait staff) are exempt from overtime. However, federal law provides no such exemption, and, as a result, the more beneficial law applies, meaning that wait staff are entitled to overtime. Since the MA minimum wage rate of pay is more beneficial, the MA minimum wage applies.
Confused? I get it.