Minimum wage is the lowest amount per hour an employer is allowed to pay an employee. Under the Fair Labor Standards Act (FLSA), the federal law that governs the payment of wages, the federal minimum wage is currently $7.25 per hour. The law is that no state law can provide for a minimum wage lower than the federal rate, however, a state can set a higher rate than the federal minimum wage. Why should you care about the federal minimum wage? Well, if you are an hourly wage employee, working in Massachusetts, you are making at least $5.50 more than the federal minimum wage. In Massachusetts every new calendar year through 2023 equals an increase in the paychecks of minimum-wage workers. The goal is to gradually raise the state’s hourly minimum wage from $11 to $15 by 2023.
For many restaurant, bar, and service industry workers who receive tips regularly as part of their job, the minimum hourly wage iscalculated in a different way.
Service Wage: Employers are allowed to pay an hourly wage that is dramatically below the standard minimum wage rate to service employees because the presumption is that service workers will make up the rest of their pay in tips. The current "service rate" is $4.95 for tipped employees who make more than $20 in tips a month. This means that if you are receiving tips that amount to more than $20 a month, you may receive the $4.95 an hour rate. To pay tipped employees this rate, the employer must notify the employee in writing of the relevant law, M.G.L. c.151 §7(3).
Tip Differential: Even though employers pay the service rate because the tips are supposed to add up to at least minimum wage, if the tips do NOT add up to at least minimum wage every hour per shift, then your employer must make up the difference. This is sometimes called a tip differential.
Under Massachusetts state law, tips belong to service staff -- not the employer, the cooks in "back of the house" or anyone in management. Employers are allowed to run a tip pool sp long as tips are faily divided among service staff.
Tip Credits: Massachusetts law allows employers to claim a tip credit, which just refers to the amount the employer does not have to pay and is the difference between regular minimum wage and the service rate. To break this down, employers must pay tipped employees at least $4.95 an hour. This means employers may take a tip credit of up to $7.80, as long as the employee’s tips bring the total hourly wage up to at least $12.75. So if you, as a server, are making enough tips to equal $12.75 an hour, your employer may take the tip credit and only pay you the $4.95 an hour.
Similarly, if the employee takes the average of her tips in a given shift, and adds this "hourly tip" number to the hourly service rate, and it doesn't equal at least minimum wage, then the employee must make up the difference.
Molly works a 3 hour shift and makes $12 in tips total.
This means she made $4/hour in tips. ($12/3 hours)
$4 + 4.95 service rate = $8.95/hour for this shift, which is less than minimum wage. ($12.75, as of 2020.)
So therefore, her employer must pay the difference between regular minimum wage and what she made with tips.
$12.75 - $8.95 = $3.80 an hour.
Her employer owes her $3.80 an hour x 3 hour shift = $11.40.
Molly's paycheck should reflect that $11.40 was added to her "tip differential".
Tip Pooling: Massachusetts allows employers to require tip pooling or “tipping out.” Tip pooling means all service staff pool their tips into a common fund which is then divided among service staff based on a fair and transparent policy and practice of their employer. Only wait staff, service employees and service bartenders may participate in a tip pool. No tips from a tip pool can go to the employer, any managerial employee, cooks, chefs or any other employee working in the "back of the house."
If you believe your employer is not following the law regarding minimum wages, contact our office at 508-998-0800 to schedule a free consultation.