Colorado Tip pooling and Tip credit Laws | TipMetric 2020
Because of sports, skiing and other activities, Colorado has a significant tourism industry and hospitality plays a large role. Whether its restaurants, bars or hotels, staff employed by establishments in the hospitality industry should have an understanding of how tips are handled in their state. It’s not a stretch to say that many of these employees earn more money from their tips than they do from the wages paid by their employers.
Due to the nature of this structure, your legal rights in — relation to laws pertaining to wage and hour laws — become more complex. Determining what counts as tips, what your employer pays you in wages and whether you pour your tips into a pool, is governed by the laws in your state. While there are federal laws covering these issues, service employees earning tips should be aware of their state’s laws and understand which law is the most generous to employees.
In Colorado, service industry employees who earn tips should know about how their tips are handled, what their rites are and what the state law instructs.
Basics of a Tip
To begin, federal law and state of Colorado law has determined that tips belong 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.
As indicated by Colorado law, an employer planning to retain employee to tips, gratuities, and gifts (except in the case of a valid tip credit or tip pooling arrangement) must inform their customers of such an arrangement. The employer is required to post a 12 x 15-inch printed card, in an obvious location that sates all tips given to employees by patrons are the property of the employer, not the employee.
There are helpful online resources to help employers and employees better understand how to use tip distribution software.
Tip Credits
In Colorado, an employer can count some of the employee’s tips as if the employer has paid them directly. This is a tip credit. The federal minimum wage is now $7.25 per hour. As of January 1, 2019, the minimum wage in Colorado is $11.10 per hour. Colorado law enables employers to claim a tip credit of $3.02 per hour. What this means is employees can be paid as little as $8.08 per hour by their employer for 2019, assuming they earn enough in total compensation to meet the $11.10 per hour minimum wage requirement.
Tip Pooling
Colorado 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. Employees receiving tips are only required to contribute what is reasonable and may also ensure that whatever they do keep meets the minimum wage requirements. There are certain guidelines Colorado employers must follow if allowing tip pooling.
Employees who share in the tip pooling must be part of “chain of service” where their actions may result in a tip from a customer. This could include wait staff, bartenders, hosts and buss staff. Not included in this group are dishwashers, cooks and cashiers.
The tip must also be distributed in a way that is reasonable and fair. The Colorado Department of Labor Standards Enforcement has found that a fair and reasonable distribution of tips includes 80% to wait staff, 15% to bussers, and 5% to bartenders. While this distribution is not a law, it does act as a guideline and each employer must take their circumstances into account when distributing shared tips.
Mandatory Service 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 Colorado, this additional charge is not a tip and it should be noted that the establishment should inform the customer of this. If any portion of that service charge is shared with the service staff, then customers should be made aware of that as well.
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.
Credit Card Charges
If an employer pays a service charge to accept credit cards from customers, and that customer leaves a tip as part of the credit card payment, the employer is allowed to deduct the employees share of the credit card processing charge the employee realizes in Colorado. For example, if the credit card company charges a 3% service charge to the employer when processing a customer’s credit card, and that customer leaves a tip via the credit card, the employer may reduce the employees tip by that 3% charge.