The Colorado Department of Labor and Employment has announced that, effective January 1, 2013, the minimum wage for non-exempt employees will increase from $7.64 to $7.78 per hour. Moreover, the minimum wage that tipped employees must be paid increases from $4.62 to $4.76 per hour, whereas the maximum tip credit employers may apply towards meeting their minimum wage obligation remains $3.02 per hour. Colorado joins Missouri, Vermont, and 7 other states that will have increased minimum wage rates in 2013.
For the first time since July 2009, the Missouri minimum wage will exceed the federal rate. The Missouri Department of Labor & Industrial Relations announced that, effective January 1, 2013, the state minimum wage for non-exempt employees will increase from $7.25 to $7.35 per hour. Moreover, the minimum wage that tipped employees must receive increases from $3.63 to $3.68 per hour, and the maximum tip credit employers may take increases from $3.62 to $3.67 per hour. The Missouri announcement comes a few days after Vermont announced an increased 2013, and shortly after a host of other states announced higher minimum wage obligations for employers in 2013.
The Vermont Department of Labor has announced that, effective January 1, 2013, the state minimum wage will increase from $8.46 to $8.60 per hour for non-exempt employees. Additionally, the minimum wage for tipped employees increases from $4.10 to $4.17 per hour. Moreover, the maximum tip credit employers may take increases from $4.36 to $4.43 per hour. For a list of states that will also increase their minimum wage in 2013, please see out previous post.
By Sarah Green
In the latest decision concerning service charges and tips in the hospitality industry, the Maine Supreme Court recently addressed whether banquet wait staff may share a “service charge” paid by customers with other employees under Maine law without violating Maine’s tip credit statute. In Hayden-Tidd v. The Cliff House & Motels, Inc., the plaintiff, a former banquet server, appealed summary judgment dismissing her putative class action, which alleged that the employer violated Maine law by not paying her and her fellow servers the entire mandatory “service charge” assessed to customers when the employer instead shared the service charge among other banquet employees. The Maine Supreme Court held that the employer’s practice did not violate Maine law.
Specifically, Maine law in effect during the plaintiff’s employment provided that an employer could pay only half of the minimum wage to its employees who received tips sufficient to raise their wages at or above the statutory minimum ($7.50 per hour during the relevant period). In order to ensure that employees received the entire tip left by the customer, the tip credit statute further required that “[t]ips that [were] automatically included in the customer’s bill or that [were] charged to a credit card must be given to the service employee.”
The employer in this case charged a mandatory 19% “service charge” for all banquet events, along with a separate line-item for a “gratuity” on customers’ bills, but a gratuity was rarely added by banquet customers. Although customers did not receive any explanation of the service charge or how it is distributed, the employer pooled the service charges collected each week and distributed 13% to banquet servers and the remaining 6% to non-server banquet staff. The employer did not retain any portion of the service charge.
Under this arrangement, the employer paid the plaintiff and her counterparts $3.75 per hour base wages, plus the 13% tip credit – resulting in average per hour wages of $23.92 to $35.09. While this was well above the minimum wage, the plaintiff argued that, based on the tip credit statute’s language requiring that tips that are automatically included in a customer’s bill be given to the employee, the employer’s practice of allocating a portion of the service charge to banquet staff other than the servers violated the statute. The plaintiff claimed that, as a result, the employer was not entitled to a tip credit against the minimum wage for the amounts of the service charge provided to banquet servers, and that she and her fellow servers were therefore not paid the full minimum wage and entitled to an additional $3.75 per hour in compensation.
The court examined whether the service charge should be treated as a tip automatically included in customers’ bills (and therefore required to be wholly provided to the banquet servers), or as an aggregate charge, only a portion of which should be treated as a tip. Noting that “tip” was undefined in the statute, the court held that nothing in the statute required the employer to treat the entire service charge as a “tip.” The court further observed that several facts militated against finding that the entire charge was a tip, including that the “service charge was not called a ‘tip’ in the contract with the customer; and the service charge was not individually paid to the banquet servers by the persons served.” Accordingly, the court found that the employer was “engaged in a practice that was distinct from the practice of calculating a total gratuity on a bill given to customers at the time of service,” which, according to the court, was the practice the statute was intended to address. As such, the court held that the employer’s practice was lawful and affirmed summary judgment.
It also bears noting that, after the plaintiff initiated her lawsuit, but before the lower court’s ruling, the tip credit statute was amended to specifically permit the employer’s service charge arrangement. The law, as amended, now states that an “employer in a banquet or private club setting may use some or all of any service charge to meet its obligation to compensate all employees at the rate required by this section.” Because the Maine Legislature did not state that the amendment was retroactive, however, it had no bearing on the court’s decision in Hayden-Tidd.
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The Internal Revenue Service has issued new guidance (Rev. Rul. 2012-18) that provides answers to a number of questions about how taxes are imposed on employee tips under the Federal Insurance contributions Act (FICA). The document begins with a detailed explanation of both an employer’s and employee’s FICA tax obligations as they apply to tips, clarifies how tips are to be reported to the employer and to the agency, and discusses the consequences for unreported amounts. The guidance also differentiates between what constitutes a tip and a service charge for tax purposes, explains when the section 45B employer tip credit should be applied, and sets forth a series of Q&As for employees and employers. The document is designed to modify and supersede prior guidance (Rev. Rul. 95-7) issued on this topic. To learn more about the guidance and its potential implications for employers, please continue reading at Littler's Washington D.C. Employment Law Update.
The Tennessee General Assembly recently amended the state’s meal and rest break law to require meal breaks for tipped employees in the food and beverage industry. Fortunately, the new law also allows tipped employees to waive their right to meal breaks as long as employers follow a very specific process.
Under Tennessee law, employers must grant employees a 30-minute unpaid meal break unless the nature of the business provides “ample opportunity [for employees] to take an appropriate meal break.” Before the recent amendment, Tennessee employers in the food and beverage industry were not obligated to grant rest breaks to their tipped employees. In the interest of providing regulatory guidance to employers in the industry, the Tennessee Department of Labor determined that waiters and waitresses fall within the exception to the meal break requirement because, by the nature of the business in which they work, there is ample opportunity to take a meal break. As a result of the Tennessee DOL’s guidance, employers in the food and beverage industry were able to avoid disruptions in service caused by meal breaks and provide the uninterrupted attention that is vital to customer satisfaction.
The recent amendment, however, supersedes the Tennessee DOL’s guidance and requires employers in the industry to provide meal breaks to all tipped employees in the service of food or beverages to customers. Realizing that unpaid meal breaks may be unpopular in the industry, the Tennessee General Assembly inserted a provision in the new law that allows tipped employees to waive their rights to unpaid meal breaks by signing a waiver request form. To obtain a valid meal break waiver, an employer must develop a waiver request form that acknowledges an employee’s right to an unpaid meal break and allows the employee to knowingly and voluntarily waive that right.
In addition to providing a valid waiver request form, the employer also must post in at least one conspicuous place in the workplace a reasonable policy that permits employees to waive their meal breaks subject to the demands of the work environment. The employer’s meal break waiver policy must contain the employer’s waiver form, must identify the length of time the waiver will be effective, and outline the procedure for rescinding the waiver agreement. For a waiver to be valid, the employee must submit the waiver request knowingly and voluntarily and both the employer and employee must consent to the waiver. In other words, the employer cannot coerce the employee into waiving a meal break.
The amendments become effective on May 16, 2012, and directly and significantly impact industry employers whose tipped employees may wish to waive their rights to meal breaks.
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