Arizona Tip pooling and Tip credit Laws | TipMetric 2020
For the state of Arizona, service industry employees who earn tips can find more information about Arizona minimum wage, tip rules and standards for overtime pay at the website for the Industrial Commission of Arizona.
The Fundamentals About Tips
To begin, federal law and state of Arizona law has determined that tips belongs to the employee rather than the employer. This means that employers cannot simply ask staff to hand over tips. With that said, there are exceptions if certain criteria are met.
· A tip credit can be taken, meaning that state law allows the employer to count some of all of the employee’s tops as part of its obligation towards minimum wage.
· A valid tip pool exists, and under federal law and most state laws, employees are required to pay part of their tips into a pool that is then shared among other employees within the establishment.
Tip Credits
Due to the federal minimum wage (or state minimum — whichever is higher), employees are owed a minimum wage per hour. At the federal level, that amount is $7.25. In the state of Arizona, that minimum is $11.00 per hour. Also, the state can take a tip credit of $3.00 per hour, meaning the employee can be paid as little as $8.00 per hour as long as their tips per hour allow them to earn a minimum of $11.00 per hour, all combined. If an employee does not make a minimum of $3.00 per hour, the employer is then obligated to make up the difference.
Multiple Jobs
There are some cases where employees may have more than one job, or dual jobs. In an environment where an employee, during an 8-hour shift, may wait tables for 6 of those hours but then be assigned other support duties outside of the restaurant for the remaining two hours, federal law indicates that a tip credit cannot be claimed by the employer for those 2 hours outside of the restaurant.
Pooling Tips
Arizona law does allow employers to require tip sharing and tip pooling and that pool is shared among staff that assist in serving customers as part of their regular job duties and proper tip management is critical for employers to get a handle on. Employees receiving tips are only required to contribute what is customary, reasonable and may also ensure that whatever they do keep meets the minimum wage requirements. The pool is only to be shared among qualified staff and may not be taken or held by management or ownership.
Mandatory Service Charges and Credit Card Charges
A mandatory service charge is sometimes added to a customer’s bill if warranted, for things such as larger tables, private parties or similar circumstances. This is viewed as part of the contract between the customer and the restaurant and not an indication of good service by the wait staff. In Arizona, this additional charge is not a tip and the employer may keep all of the money derived from that charge.
The Internal Revenue Service, in 2014, created an incentive for establishments to no longer charge mandatory service charges if any portion of it is shared with the staff. If part of the service charge is shared with staff, then it must be categorized as wages instead of tips, and, as a result, must have Social Security and Medicare withheld on these amounts. Any amount given by the customer above the normal cost of food and taxes must be voluntary if it is to be properly categorized as a tip to the service staff.
If an employer pays a processing fee to accept credit cards from customers, and that customer leaves a tip as part of the credit card payment, then in Arizona, the employer is allowed to deduct the employees share of the credit card processing charge the employee realizes.
Persons employed within the hospitality industry in Arizona should have an understanding of the state’s rules and rites as well as an understanding of how their income may be impacted. In addition, employers should be aware of the tip management software available to them to help properly keep track of their responsibilities when it comes to employee tips.
(Note: Most businesses track tips on paper and complex spreadsheets, which is labor intensive and prone to error, adding exposure to wage/tip lawsuits and IRS tip audits. Instead, TipMetric.com has developed a better solution. This innovative web app is purpose built to take the pain out of tip pooling. You simply enter the total tips collected and hours worked, and it calculates the distribution for you.)