Do you earn tips? Plenty of employees in Massachusetts 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 Massachusetts legal protections for employees who receive tips. You can find out more about Massachusetts minimum wage, tip rules, overtime standards, and other wage and hour issues at the Massachusetts Office of Labor and Workforce Development.
The basic rule of tips, under federal law 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. The minimum wage in Massachusetts is $12 an hour as of January 1, 2019. Because the state rate is higher, employees in Massachusetts are entitled to earn the state minimum wage.
State laws differ as to whether the employer must pay the full minimum wage itself or may count an employee’s tips toward its minimum wage obligation. 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.
Massachusetts law allows employers to claim a tip credit. In 2019, employers must pay tipped employees at least $4.35 an hour. This means employers may take a tip credit of up to $7.65, as long as the employee's tips bring the total hourly wage up to $12.
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 Massachusetts, 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. 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 Massachusetts law, only wait staff, service employees, and service bartenders may participate in a tip pool, and only in proportion to the service they provided to the customer. And no employers are allowed in the pool: Tips from a tip pool can't go to the employer or to any managerial employee.
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. Massachusetts law is very strict on this issue. In Massachusetts, service charges (defined as a fee or charge in lieu of a tip that the customer would reasonably expect to go to wait staff) are treated like tips: They belong to the employees who provided service to the customer.
Massachusetts employers may impose a house or administrative fee, in addition to or instead of a tip or service charge. However, this fee must be clearly designated and employers must be informed that it is not a tip or service charge that goes to employees.
A 2014 rule change by the Internal Revenue Service has created a significant incentive for employers to stop imposing mandatory service charges, if the employer hands any of that money over to employees. 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.
Under Massachusetts law, tips expressly include amounts customers add to credit card bills. State law also prohibits employers from taking any deduction from employee tips, other than as a contribution to a valid tip pool. Read together, these provisions could be interpreted to prohibit employers from deducting processing fees from tips left for employees on credit cards.