By Mary O’Neal, Esq.
I am gearing up for the summer season and plan to open my seasonal restaurant in April, and I want to know if there have been any changes to the law with respect to minimum wages and how to pay tipped employees? The issue is confusing and I want to make sure I am doing it correctly.
As of January 1, 2019 through December 31, 2019, Massachusetts (“MA”) minimum wage rates of pay are:
Regular Minimum Wage $12 an hour
Service Rate Minimum 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 minimum “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 up to $7.65 an hour, so 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 employee the difference. Tips over and above the $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 of this law 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 (e.g., waitresses, bus boys) 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 insure 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 insure 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
According to the Attorney General’s recently published guidance, the added clause means that at the end of every shift, an employer must compare the sub-minimum rate paid to, plus tips earned by, the employee to the full minimum wage required to be earned (presently $12 an hour). 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 day in excess of the minimum wage cannot offset a shortfall on another day. Any minimum wage differential amount needed to make up any shortfall must be included in the employee’s next regular paycheck.
It is important to note that the law refers to “each shift,” not “each day.” This word choice appears to mean that if a tipped employee works two shifts on one day (for instance, a breakfast shift and a dinner shift), the calculation must be completed separately for each shift.
This new language was not part of the prior law, and employers have typically looked at earnings on a daily, if not a weekly, basis, but employers may no longer do so.
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 is $60.00 – $41.75 = $18.25.
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 the week’s paycheck even though the employee made that amount up on Saturday.
Employers covered by both MA and federal law are required to 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 confusing and 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:
Minimum Wage: $12
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
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.
Mary O’Neal, Esq., is a partner in the Boston law firm of Conn, Kavanaugh, Rosenthal, Peisch & Ford LLP. Send questions to firstname.lastname@example.org.