Tips: a resource

Tips: a resource

Tips: an overview of the legal requirements.

Tips and how they figure into the Seattle Minimum Wage Ordinance is complicated. Much of the ordinance is complex. In order to help you navigate these rules we have commissioned a legal analysis for all aspects of the minimum wage that you can use as a guide. You can see it here: Minimum Wage Ordinance Guide (MWG.)

The first thing to know, rules are different for Schedule 1 and Schedule 2 employers so the first step is figuring out what you are! Figure that out here. But in very basic terms a Schedule 1 restaurants are large and Schedule 2 restaurants are small – that’s not the only difference though so make sure you check it out.

Small restaurants are allowed to use tips towards meeting the difference between minimum wage and minimum compensation. What are the differences? Click here to learn the difference. (Also, check page 16 of the MWG). Want to know what payments are included in compensation? Check the bottom of page 18 of the MWG).

If you are a schedule 2, small restaurant, you can apply tips towards an employee’s minimum compensation if the tips are:
• Retained by the employee.
• Reported to the IRS (all tips should be).
• Only counted during time spent by the employee working in a tipped position, if they do something non-tipped you can’t count that (What are tipped positions? Find out at the top of page 22 in the MWG).

We recommend you average tips over the workweek. Minimum wage and overtime laws are typically applied on the workweek basis. Therefore, averaging tips over the workweek will be more consistent, less confusing, and less likely to be viewed as a violation. (See pages 22 and 23 of the MWG for more.)

Applying tips towards the minimum compensation can create complications in calculating the employee’s overtime rate of pay. You can read an example of how to do the breakdown here. (And, the MWG page 24 and 25. Also, check out page 11 of the MWG for overtime calculation rules).

You should keep your payroll records for at least three years. Tips that demonstrate the payment of minimum wages and minimum compensation to each employee must be included. (See page 11 of the MWG).

If you are going to count tips in the wage calculation you must provide written notice to your employees that contains certain information or have a poster on display that details this information. You can get a breakdown of that information on pages 26 and 27 of the MWG. Or, you can use these sample letters as a guide:

– Sample letter: Current Tipped Employees
– Sample letter: Tipped Employees At Time of Hire

Finally, there are many ways which service charges and tips go hand-in-hand. We will be covering service charges in future versions of this email update. For now, you can read extensively about service charges in the MWG.

We realize implementation of the new Seattle Minimum Wage ordinance can be intimidating and confusing. If you have any questions about what you should or should not do we are here to be your resource. You can call us anytime (360) 956-7279.

Tips: what are other restaurants doing?

Check out these stories about what other restaurants are doing. Some Seattle restaurateurs are eliminating tips in favor of alternative methods others have instituted a service fee. Restaurants are looking for creative answers.

• Ivar’s:
• Seattle Times:
• Seattle Eater:
• LA Times:

What are your plans to address tips? Send us your stories anytime at


Also check out Edition Five in our Minimum Wage Survival Guide, Tips: A Resource.

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