AREN’T TIPS, TIP POOLS, SERVICE CHARGES AND SURCHARGES ALL DIFFERENT THINGS?
Yes and no. Each has its own legal rules and risks, but there is cross over. A mandatory tip out is a tip pool. A surcharge may qualify as a service charge. Failing to understand and properly account for the differences can be costly. We’ve compiled this toolkit with important and up-to-date resources for operators with questions about tip pooling and service charges.
TIP POOL FAQS FROM EMPLOYMENT LAW ATTORNEY
We have an owner or manager who waits tables a couple of shifts per week. Can they participate in our tip pool?
No. An owner or manager cannot participate in a tip pool. Further, having a manager wait tables suggests that the manager may be misclassified as an overtime exempt manager. That is, the manager is entitled to overtime pay. A manager must perform exempt duties, that is duties that qualify under the “executive exemption” generally 50% or more of each workweek. Waiting tables is not an exempt duty.
Can owners or managers ever accept tips?
Maybe. There is a very, narrow, limited exception when an owner or manager directly provides service to the particular guest. For example, if a manager fills in as a server for an evening, the manager may keep the tips for the tables the manager directly services. That is, the tips the guest decides to give to the manager. But the business should have very clear records to prove that only the manager served those guests.
Should I put our tip pooling policy in writing?
Yes. Taking the time now to create a clear, lawful, transparent, and written policy, which employees review, may save you a lot of headache down the road. The same goes if you have a service charge distribution policy.
Can an owner or manager receive a share of a service charge?
Yes, but be careful. The rules about service charge disclosures on menus and receipts are strict. Failing to follow them means the entire service charge collected must be paid to the employee serving the customer.
Operators can feel confident adopting and implementing a tip pooling policy if they want, AS LONG as the policy meets certain requirements.
A few key points to remember on tip pooling:
- Make sure your tip policies are in writing and clearly understood by your entire staff. You may also want to ask them to sign an acknowledgement form like the example linked below.
- Supervisors, managers and owners CANNOT participate in employee tip pools under any circumstances.
- Supervisors, managers and owners may not withhold tips from employees for any reason.
- Tip pools and service charges are different entities with different sets of laws and regulations that govern each. Make sure you and your employees clearly understand the differences if you have tip pools, service charges or both.
- Wages are governed by laws and rules at the federal and state (and in some cases, local) levels. Always assume that the applicable law/rule for any situation you are facing is the one that is most favorable to the employee.
- Transparency and clarity with your employees and guests on your company policies are key ingredients to avoiding disputes.
WHERE CAN I GET MORE HELP?
You do not have to figure out these complex issues on your own! Members of the Washington Hospitality Association have access to our Advisory Network of experts who can provide consultations on legal issues and more. Find out how our Advisory Network can help you today!
We HIGHLY encourage you to check out the Ask A Lawyer webinar with employment law attorney Catharine Morisset of Fisher Phillips. Catharine discusses tips, tip pools, service charges and surcharges in greater detail.
Check out our members only Tip Pooling toolkit on our members only hub as well.
This is an area of employment law that is frequently subject to litigation, which can be costly and time consuming. Taking a few moments to watch Catharine’s webinar and consulting with your attorney will align your policies with the law and help you avoid litigation.
You can access this webinar on the members-only hub here.
In addition, Washington Hospitality Association members get a free, 30-minute consultation with an expert who can walk you through your tip pooling questions. Get your specific questions answered by by calling 800-225-7166 or reach out to your territory manager to get connected.
Service charges can be complicated. You may hear them referred to as service fees, booking fees, or customer service fees. And once you have decided what to call them, they don’t always get easier to understand. Washington state’s rules regarding tips and service charges can be hard to navigate and federal rules add another layer of complexity to the requirements for employers. Class-action lawsuits targeting hospitality businesses are on the rise but the Washington Hospitality Association has tools to help your business stay compliant.
This toolkit compiles important and up-to-date resources for operators with questions about service charges.
MEMBERS: OUR HERO MANUAL IS A WORLD-CLASS RESOURCE.
The HERO manual has hundreds of pages with guides to help you navigate Washington’s hospitality climate. The HERO manual has new updates in its service charge section and has all the information members need to understand service charge requirements. Log in to the members only hub to view it online.
DO YOU HAVE DISCLOSURES ON THE RECEIPT AND THE MENU?
This is the law addressing service charge disclosure – the code says you must disclose the percentage of the fee that goes directly to employees on the menu AND on the receipt. Failing to meet this requirement is a common mistake for businesses. RCW 49.46.160: Automatic service charges. (wa.gov).
MEMBERS: THIS WEBINAR WITH AN EMPLOYMENT LAW ATTORNEY TAKES A DEEP DIVE.
You can replay this webinar that looks at common service charge, tips, and tip pooling errors that can easily trigger liability and cost employers money. Presented by employment law attorney Catharine Morisset of Fisher Phillips, this webinar provides members with a refresher on the rules and offers some tips to avoid common mistakes. Log in to the members only hub to watch it here.
QUESTIONS, ANSWERS AND EXAMPLES
For federal and state laws on service charges, Q&A, and example disclosure forms check out our guide to service charges in Washington.
L&I POLICY GUIDANCE
We have an article here where you can read about the most recent policy guidance from Labor and Industries addressing employer requirements and employee rights on tips, gratuities and service charges.
L&I also has information and rules regarding tips and service charges where they encourage employees to file a complaint if they feel they are not getting paid service charges as required by law.
In addition to the statewide L&I guidance, the Seattle Office of Labor Standards has published its own service charge fact sheet.