Tip of the Day: Be Careful with your Tips

Joel SowalskyIf you own a Massachusetts restaurant, coffee shop or other business in the retail food service industry, you need to know the state law regarding tips and tipping. In some respects the law is counter-intuitive, and in all respects the penalties for violating it can be massive.

The law prohibits employers, managers and supervisors from taking any portion of tips that have been given by customers to “wait staff.” The law defines the “wait staff” as those who serve food or beverages directly to patrons, or who clear tables, and have no managerial responsibility. The law also requires that any “service charge” automatically added to food bills (as is often done for groups of 6 or more or for banquets and private functions) must be paid only to wait staff employees. Failure to comply with this law can result in double or triple damages to your employees.

Two cases illustrate how easy it is to violate this law and to pay dearly for it. The Harvard Club agreed to pay $4 Million to its wait staff for allegedly violating the Massachusetts Tips Act, and Starbucks was ordered to pay $14 million to its “baristas” for violating the law. In the Harvard Club case, the Club had a “no tipping” policy but added a “Club Charge” of 17%-22% to all bills. This Club Charge was kept by the Club and was not paid to wait staff, although patrons thought that it was a tip for the wait staff. In the Starbucks case, shift supervisors – who mostly performed the same work as the baristas but also had some supervisory responsibilities – were found to be unlawfully sharing in the customer tips.

General Counsel says: Don’t take your employees’ tips. Make sure that all tips given to employees are paid to them promptly. If you have a policy of pooling tips, make sure that no portion is paid to anyone with any level of supervisory authority. If you automatically add a percentage of a bill as a “service charge,” make sure it is paid only to your non-supervisory wait staff employees.

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