May 31, 2023

Massachusetts tip laws are designed to ensure fair compensation for service industry workers and protect their rights. If you’re an employer in the state’s hospitality industry, you must have a solid understanding of these laws to avoid potential violations. 

In this blog post, we’ll dive into the basic tip rules, the concept of tip credit, minimum wage requirements, tip pooling rules, and the treatment of mandatory service and credit card charges.

Basic Massachusetts Tip Laws

Massachusetts wage and hour laws consider tips the property of the employees who receive them. Employers are prohibited from keeping or distributing any portion of the tips received by their employees except:

  • In the case of a tip credit, when the employer counts all or part of the employee’s tips to meet minimum wage requirements.
  • As part of a valid tip pooling arrangement, when employees share and divide their tips.

More on both of these below!

Understanding Tip Credits & Minimum Wage Requirements

A “tip credit” is a provision that allows employers to pay employees in tipped positions less than the regular minimum wage as long as the employee’s tips bring their total compensation up to or above the minimum wage. Federal law and most state laws allow a tip credit—but only if you make more than $30 in tips each month.

As of January 1, 2023, the minimum wage in Massachusetts is $15 per hour for non-tipped employees. For tipped employees, the minimum wage (i.e., server’s wage) is $6.75 per hour, meaning the employer may take a tip credit of up to $8.25. The employer must make up the difference if an employee’s tips fall short of $15 an hour.

Massachusetts Tip Pooling Rules: Legal or Not?

Tip pooling or sharing is when a group of employees pool their tips and redistribute them according to a predetermined formula. Under Massachusetts tip laws, employers can legally require employees to share their tips. However, certain rules must be followed:

  • Only wait staff, service employees, and service bartenders can participate in a tip pool. 
  • Employers must inform all qualified staff of the tip sharing arrangement.
  • Each employee must be able to keep at least the full minimum wage.

Additionally, owners and managers are not allowed to participate in the tip pool.

What is Considered a Tip?

Tips are voluntary, gratuity-based payments given by customers to service industry workers in recognition of good service. They are considered the property of the employees who directly receive them. Whether in cash or included in credit card payments, tips are additional payments that customers choose to provide on top of the actual cost of goods or services rendered.

Employees must be allowed to retain the full amount of tips they receive, with no portion going to the employer, except when participating in a valid tip pooling arrangement (as mentioned earlier).

Now, let’s break down the exceptions of mandatory service charges and credit card fees.

Mandatory Service Charges

Mandatory service charges are different from tips. These charges are predetermined and automatically added to the bill for large parties or special events. Unlike tips, mandatory service charges are not discretionary or voluntary payments made by customers based on the quality of service received.

Under Massachusetts law, mandatory service charges are not considered tips. Instead, they are regarded as revenue for the employer. As such, these charges must be treated as wages and paid to the employees, subject to income tax withholding and other employment taxes.

Employers must communicate to employees and customers that mandatory service charges are not tips, ensuring transparency and avoiding confusion.

Credit Card Charges

The employer may incur credit card processing fees when customers pay with a credit card. The employer is responsible for paying these fees as a cost of doing business rather than passing the charges onto the employees. Massachusetts tip laws prohibit employers from deducting these fees from the tips given by customers.

Employees must receive the total amount of tips given by customers, regardless of any credit card fees incurred by the employer. Employers should know this distinction and ensure employees receive the entire tip amount.

Ensure Legal Tipping in Massachusetts

Compliance with Massachusetts tip laws is vital for employers in the service industry. Understanding the basic tip rules, tip credit, minimum wage requirements, tip pooling regulations, and the treatment of mandatory service charges and credit card fees is essential for maintaining fairness and legality in the workplace.

By adhering to these laws, employers can protect their employees’ rights and maintain a positive work environment, while employees can receive the compensation they deserve for their hard work and dedication.

Do you need guidance on your Massachusetts company’s tipping practices and policies? Our HR consultants are ready to lead the way! Contact BlueLion today at 603-818-4131 or to learn more about our outsourced HR services.

The information on this website, including its newsletters, is not, nor is it intended to be legal advice. You should contact an attorney or HR specialist for advice on your individual situation.