3/22/23: Washington’s L&I Issues New Guidance on Tips, Gratuities & Service Charges
March 22, 2023
The Washington State Department of Labor & Industries (L&I) recently released a draft administrative policy providing guidance to employers on how to comply with the Minimum Wage Act’s requirements for tips, gratuities, and service charges. The policy is subject to public comment and Washington employers are encouraged to submit comments to the agency through April 15, 2023.
Tips & Gratuities
The draft policy explains that tips and gratuities are “amounts freely given by a customer to an employee.” Tips and gratuities must be paid in full to employees, and employers may not count tips towards an employee’s hourly minimum wage. L&I provided examples of various practices that violate the Minimum Wage Act.
One example in the draft policy involves a group of temporary employees from a staffing agency who are hired to work alongside permanent employees at a concert venue. Under this example, the venue employer and staffing agency are considered “joint employers.” All employees were required to contribute all of their tips to a tip pool, but only the permanent employees were paid out from the tip pool. L&I found that this type of arrangement violates RCW 49.46.020(3) and that similarly-situated employees serving customers in the same way are expected to be subject to the same tip pooling. L&I further advises that all employers in a joint employer circumstance will be held responsible individually and jointly for compliance with the Minimum Wage Act.
Another example of a hazardous tipping practice under the Minimum Wage Act is managers collecting a share of a tip pool. L&I’s example involves employees of a café that employs servers, kitchen staff, and a manager. The manager waits tables and serves customers, but meets the definition of an “executive” employee. In this example, the employer is in violation of RCW 49.46.020 because the manager is ineligible to collect from the tip pool.
L&I provides another example of an employee bartender who receives tips. When the register is short because a customer did not pay their bill, the employer deducts the unpaid bill from the employee’s tips. This payment scheme violates the Minimum Wage Act, which prohibits employers from deducting cash register shortages or other business expenses from tips, gratuities, or service charges earned by employees.
Service Charges
Service charges are automatic charges added to a customer’s bill for services related to food, beverages, entertainment, or porterage. Mandatory gratuity automatically added to a bill at a restaurant for service of a party exceeding a set number of customers is an example of a service charge. Employers must pay employees all service charges, unless they provide a disclosure meeting the standards set out under RCW 49.46.160, which would allow the employer to keep clearly-disclosed portions of the service charge. As with tips, service charges cannot be counted towards an employee’s minimum wage.
One example provided by L&I emphasizes the importance of assessing wage practices under municipal laws in addition to the Minimum Wage Act. A porter is employed by a hotel in Seattle. Seattle has imposed a minimum wage exceeding the State’s minimum. The hotel imposes a service charge for each guest, disclosing that the charge is paid entirely to employees. The hotel counts the services charges paid to the porter towards his minimum wage. This is lawful, because the Seattle ordinance specifically allows businesses to credit service charges towards its minimum wage. Because the employer was paying a base wage in excess of the State’s minimum wage, while crediting its service charge payments towards the Seattle minimum wage as allowed by the ordinance, the payment policy was in compliance.
L&I’s guidance is a good reminder for employers to make sure they are in compliance with all applicable wage laws. For questions on compliance with wage laws and policies on tips, gratuities, and service charges, contact the Barran Liebman team at 503-228-0500.
