Do you earn tips? Plenty of employees in Maine do, including those who wait tables, serve and mix drinks, open doors, carry luggage, clean hotel rooms, or provide other services, from moving furniture to delivering newspapers. In fact, some employees earn more in tips from satisfied customers than in straight wages paid by their employers.
When you receive tips as part of your compensation, your legal rights under wage and hour laws become a bit more complicated. The rules about what counts as a tip, how much your employer must pay you, and whether you have to contribute to a tip pool (among other things) all depend on the laws of your state. Although federal law also covers these issues, employers must follow whichever law—federal, state, or even local—is the most generous to employees.
Here's what you need to know about federal and Maine legal protections for employees who receive tips. You can find out more about Maine law on minimum wage and tips at the Maine Department of Labor.
The basic rule of tips, under federal and state law, is that they belong to the employee, not the employer. Employers may not require employees to hand over their tips unless one of these exceptions applies:
Minimum wage laws protect all employees, whether or not they receive tips. Employees are entitled to earn the full minimum wage per hour as set by federal or state law. Currently, the federal minimum wage is $7.25 an hour, while Maine's minimum wage is $12.75 an hour (in 2022). Thus, employees in Maine are entitled to the higher state minimum wage of $12.75 an hour.
Under federal law and in most states, employers may pay tipped employees less than the minimum wage, as long as employees earn enough in tips to make up the difference. This is called a "tip credit." The credit is the amount the employer doesn't have to pay, so the applicable minimum wage (federal or state) less the tip credit is the least the employer can pay tipped employees per hour. If an employee doesn't make enough in tips during a given workweek to earn at least the applicable minimum wage for each hour worked, the employer has to pay the difference.
Maine law allows employers to claim a tip credit. The maximum tip credit is 50% of the state minimum wage. In 2022, employers may take a tip credit of $6.38 and pay tipped employees as little as $6.38 per hour. If the employee's hourly wage plus tips earned don't add up to at least $12.75 an hour, the employer must make up the difference.
Some employees have dual jobs, in which they spend some of their shift doing non-tipped work. Under a 2018 change to federal law, if an employee performs related non-tipped duties at the same time as—or a reasonable time immediately before or after—performing tipped duties, the employer can take a tip credit for the time spent on those non-tipped duties.
Example. A waitress spends six hours of her eight-hour shift waiting tables; she spends the remaining time cleaning and restocking the service stations, preparing cold salads and desserts, and making coffee. The employer can claim a tip credit for all eight hours of the waitress's shift.
However, employers cannot take a tip credit for any of their employees' time spent performing tasks that are unrelated to the tipped duties, or tasks that aren't completed during or immediately before or after the tipped duties.
Example. A waiter spends six hours of his eight-hour shift waiting tables; he spends the remaining two hours running personal errands for his employer. The employer cannot claim a tip credit for those two hours of non-tipped work because they're not related to the waiter's tipped duties.
Many states, including Maine, allow employers to require tip pooling or "tipping out." All employees subject to the pool have to chip in a portion of their tips, which are then divided among a group of employees. Employers must notify employees of the tip pool in advance. In addition, employees can't be required to pay more into the pool than is customary and reasonable, and the employee must be able to keep at least the full minimum wage. (In other words, if the employer takes a tip credit, the employer can count only the tips the employee gets to take home against its minimum wage obligation.)
Under federal law, if the employer claims a tip credit, then only employees who regularly receive tips can be part of the tip pool. Employees can't be required to share their tips with employees who don't usually receive their own tips, like dishwashers or cooks, unless the employer doesn't claim a tip credit and pays the employee the minimum wage directly. And tips from a tip pool can't go to the employer, managers, or supervisors.
It's not as easy as you might think to figure out exactly how much of what a customer pays is a "tip." If the customer pays in cash and tipping is voluntary, whatever amount the customer leaves over and above the charge for products or services (plus tax) is a tip. However, if the employer imposes a mandatory service charge, or the customer pays by credit card, the rules might be different.
Some restaurants tack a "mandatory service charge" on to bills for large tables of diners, private parties, or catered events. Under federal law and in most states, this isn't considered a tip. Even if the customer thinks that money is going to you and doesn't leave anything extra on the table, your employer can keep any money designated as a "service charge." The law generally considers this part of the contract between the patron and the establishment, not a voluntary acknowledgment of good service by an employee. Many employers give at least part of these service charges to employees, but that's the employer's choice: Employees have no legal right to that money.
A couple of states have different rules, intended to make sure that customers know whether their money is going to the employer or the server. In Maine, tips include "a charge automatically included in the customer's bill," except in a banquet or private club setting by agreement between the customer and the employer. And, tips belong solely to the employee, unless there's a valid tip pooling arrangement. Read together, these rules seem to indicate that an automatic service charge in a regular restaurant setting should be treated as a tip. However, in a banquet or private club setting, an employer may take the service charge and use all or some of it for employee wages generally, as long as it notifies customers that the service charge is not a tip going to serving employees.
According to IRS rules, any portion of a mandatory service charge that the employer pays out to employees must be treated as wages, not tips. This means the employer must withhold and pay Social Security and Medicare (FICA) tax on these amounts, may not claim a credit against its tax obligations for these amounts (as it can for tips), and must include them as part of the employee's hourly wage when determining overtime payments, among other things.
The rule applies only to mandatory service charges. For the amount to count as a tip rather than a service charge, all of the following must be true:
State rules differ as to whether employees are entitled to the full amount of a tip left by credit card. If the employer has to pay the credit card company a processing fee, some states allow the employer to subtract a proportionate amount of the tip to cover the employee's "share" of the fee. For example, if the credit card company charges a 3% fee, the employer could legally reduce the employee's tip by 3% as well.
Maine law states that tips charged on a credit card must be treated like tips given directly to the service employee. This statute could be interpreted by a court to preclude employers from taking processing fees out of employee tips.