Tips in Seattle: Understanding what the new minimum wage ordinance means for employers with tipped employees.
The Washington Lodging Association and Washington Restaurant Association commissioned a legal analysis of Seattle’s Minimum Wage Ordinance to help their members understand and comply with the complex new law. The result is the Seattle Minimum Wage Ordinance Guide (MWG), which gives an overview of all aspects of the wage law. The two associations are also partnering on a series of articles, the first of which looks at tips. Tips: An overview of the legal requirements.
The Seattle Minimum Wage Ordinance is complex, and how it handles tips is particularly complicated.
First off, you need to know that there are different tip rules for Schedule 1 and Schedule 2 employers. Figure out which type of employer you are here. You’ll see that while the number of employees counts, size isn’t the only difference between the two types.
Schedule 1 employers, also called “large employers,” 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 employer,” you can apply tips towards an employee’s minimum compensation if the tips are:
• Retained by the employee.
• Reported to the IRS (as all tips should be).
Tips can only bSmall employers can only count tips towOnly counted during time spent by the employee working in a tipped position. (If they do something non-tipped, it can’t you can’t count it. Learn about tipped positions at the top of page 22 in the MWG).
Minimum wage and overtime laws are typically applied on the workweek basis, and we recommend you average tips over the workweek. 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 on this.)
For large employers, applying tips towards minimum compensation can create complications in calculating the employee’s overtime rate of pay. Find an examplehere. (Also see the MWG page 24 and 25. Overtime calculation rules are on page 11.)
Be sure to keep payroll records for at least three years. Tips that demonstrate the payment of minimum wages and minimum compensation to each employee must be included in your records. (See page 11 of the MWG).
Give written notice if you count tips in wage calculations If you are going to count tips in the wage calculation, you must provide written notice to your employees with specific 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:
Finally, there are many ways in 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.
For more information about the MWG, or help with questions about the implementation of the new Seattle Minimum Wage ordinance, please call WLA at 206-306-1001.