United States: New Year Brings New Requirements For Calculating Tipped Employee Wages In Massachusetts

Last Updated: January 8 2019
Article by Shawn Butte

Earlier this year, Gov. Charlie Baker signed a comprehensive bill titled "An Act Relative to Minimum Wage, Paid Family Medical Leave and the Sales Tax Holiday," which brought a variety of new protections for employees in Massachusetts. These protections include the implementation of a state-administered paid family and medical leave program, an increase of the state's minimum wage to $15 per hour by 2023, and a phaseout of time-and-a-half pay on Sundays and holidays. In addition to these highly publicized provisions, the bill included new requirements regarding the calculation of the wages for tipped employees.

Starting Jan. 1, 2019, employers in Massachusetts are required to calculate the wages of tipped employees at the end of each shift. Currently, most employers calculate the wages of their tipped employees at the end of each pay period. This new requirement will require Massachusetts employers to make procedural changes to their payroll practices to ensure the wages for tipped employees are determined in a timely manner. While this new requirement affects all Massachusetts employers with tipped employees, it has especially significant implications for employers who utilize a tip credit for one or more tipped employees.

Employers in Massachusetts, as in many other states, are permitted to pay a tipped employee an hourly wage lower than minimum wage (tip credit employee) as long as the employee earns enough in tips to meet or exceed minimum wage. This practice is known as claiming a tip credit. In Massachusetts, employers can pay tipped employees a minimum cash wage of $3.75/hr (which increases to $4.35 on Jan. 1) as long as that employee earns enough in tips to meet or exceed the $11/hr minimum wage (which increases to $12/hr on Jan. 1). When a tip credit employee does not make enough in tips to bring his or her total earnings for the pay period above the minimum wage rate for each hour worked, the employer must pay the difference to the tip credit employee. Previously, employers were permitted to wait until the end of the pay period to calculate the amount of tips earned by each tipped employee and identify whether any additional money needed to be paid to any tip credit employees. Massachusetts' new law does not permit employers to wait until the end of the pay period (or the end of the week) to make these calculations.

Effective Jan. 1, employers in Massachusetts are required to calculate the wages for tipped employees at the end of each shift to ensure that each employee is receiving at least the Massachusetts minimum wage for that particular shift. If the total cash wage and tips earned by a tip credit employee during a specific shift is less than what that employee would have earned at minimum wage, the employer is responsible for paying that employee the difference between  (1) the total compensation the employee would have received during the particular shift if he/she was paid at minimum wage and (2) the cash wage and tips the employee actually earned during the shift. If the employee participates in a tip pool, the employee's share of the tip pool must be taken into account for each shift.

Note that the new law does not change when tipped employees must be paid, but rather increases the frequency with which employers must monitor the wages of their tipped employees. From a policy perspective, the impetus for this new law appears to be to provide further protection for tip credit employees during "slower" shifts when earnings from tips tends to be lower.

The Bottom Line

Massachusetts' new requirements for calculating the wages of tipped employees creates an additional challenge for complying with the state's wage and hour laws. Employers should use this opportunity to review their payroll, compensation and timekeeping practices, especially with regards to tipped employees, to ensure wages are being calculated in accordance with the new law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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