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Major change to Massachusetts tipped employee wage calculation

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Employers in Massachusetts will recall that recent “Grand Bargain” legislation resulted in a number of significant changes, including:

  • Yearly increases of the minimum wage and tipped minimum wage (2018 rate of $11 per hour increased to $12 per hour on January 1, 2019)
  • Decrease in Sunday premium pay (1.4 times regular rate from 1.5 times regular rate)
  • Changes to the calculation and payment of tipped employees’ wages
  • Creation of a permanent sales tax holiday
  • Creation of a new Paid Family and Medical Leave program 

While all of these developments should be monitored closely by employers and HR professionals, those with tipped employees should pay particular attention to the changes to the calculation and payment of tipped employees’ wages.

Currently, most employers calculate the wages of tipped workers at the end of each pay week. The change – which took effect January 1, 2019 – requires that employers now calculate the wages of tipped workers at the end of each shift.

As a result, employers with tipped workers will need to adjust their payroll practices to ensure wages for tipped workers are determined in a timely manner. This change will have particularly significant implications for employers who take advantage of the tip credit for their tipped employees.

The tip credit looks like this: Massachusetts employers are able to pay tipped employees a minimum cash wage of $4.35 per hour (an increase from $3.75 per hour in 2018) as long as that employee earns enough in tips to meet or exceed the $12 per hour minimum wage (an increase from $11 per hour in 2018). If the tips do not bring the employee’s total pay above the minimum wage rate for each hour worked, the employer must pay the difference. While employers were previously able to make this determination at the end of the pay week, now employers must make this determination at the end of each shift – ensuring that each employee is receiving at least the Massachusetts minimum wage for that particular shift.

An example would be:

  • Assume that the minimum wage is $12.00 per hour and the service rate is $4.35 per hour
  • A restaurant server works one 5-hour shift on Tuesday and one 5-hour shift on Saturday during the same pay week
  • On Tuesday, the slow day, the employee earns $21.75 in service rate wages + $20.00 in tips for a total earned of $41.75
  • The law requires that the employee receive at least $60.00 for the shift (5 hours x $12.00 minimum wage rate)
  • The employer is required to add $18.25 to the employee’s next pay check to cover the differential for this shift
  • On Saturday, the busy day, the employee earns $21.75 in service rate wages + $100 in tips for a total earned of $121.75. Since this total exceeds the $12.00 per hour minimum wage rate for each hour worked, the employer is not required to add any amount to the employee’s next pay check for this shift.
  • Total gross wages to be paid to this employee for this pay week = $181.75

This new requirement complicates wage and hour compliance for Massachusetts employers with tipped workers. Employers with tipped workers should take this opportunity to review Payroll and Attendance practices with regard to tipped employees and ensure calculations are being made in a timely manner.

Please get in touch with us today if you have questions about implementing these changes!

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