Kentucky Tip pooling and Tip credit Laws | TipMetric 2020

In Kentucky, service industry employees who earn tips should know about how their tips are handled, what their rites are and what the state law instructs.

While we can assume that virtually all wait staff understand what a tip is, what may not be known are the laws and rules that dictate how tips should be handled and treated by establishments employing wait staff. For information regarding minimum wage, tips rules, overtime standards and additional guidelines on wages, readers may go to the website of the Kentucky Labor Cabinet. In addition, resources to understanding tip management are available online.

Basic Tip Information

Federal law and most states have indicated that tips belong to the employee, not the employer. Employees don’t have to hand over their tips to employers unless one of these exceptions are in place:

· A tip credit is in place where all or part of the employee’s tips are counted toward their minimum wage requirements. Kentucky does allow employers to take a tip credit.

· A tip pool is in place where a portion of tipped staff will provide some of their tips into a pool to be shared with other employees.

Tip Credits

Like all other states, Kentucky has minimum wage standards. The federal minimum wage is $7.25 per hour and the minimum wage in Kentucky is the same at $7.25 per hour. Kentucky does allow employers to take a tip credit and must pay employees at least $2.13 per hour. If this minimum wage and the employee’s tips do not add up to the state’s minimum wage, the employer must make up the difference.

Tip Pooling

Kentucky is one of a handful of states that does not allow for employers to require tip pooling, whereby employees must contribute a portion of their tips into a pool, which is then divided among a group of employees whose jobs support those activities related to serving the customer. Employees are not required to contribute to a tip pool for employees that normally receive their own tips, such as dishwashers, cooks and others, although a voluntary tip pool may exist.

Tip pooling software is available to ensure mistakes and disputes are eliminated, making it easier for establishments to save time processing payroll with accuracy.

Multiple Jobs

There are cases where employees have more than a single job, doing some tasks that are non-tipped related. With a 2018 change to the federal law, when employees handle non-tipped duties during their shift, such as preparing salads or making coffee, the employer can take a tip credit for that time spent on non-tipped activities. Employers cannot take a tip credit for employee time spent on activities nonrelated to tipped duties, such as handling errands for the employer.

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. The employee has no legal right to any monies collected by employers as part of a mandatory service 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.

Credit Card Charges

If an employer pays a processing fee to accept credit cards from customers (for example, 3% of the total bill being charged), and that customer leaves a tip as part of the credit card payment, whether the employer is allowed to deduct the employees share of the credit card processing charge is not directly addressed in Kentucky law. However, Kentucky law does prohibit employers from taking tips from employees unless they are required to do so by state or federal law. In short, if employers do take a portion of an employee’s tips as it relates to a credit card processing fee, a court may have to decide the legality of the action.

Persons employed within the hospitality industry in Kentucky should have an understanding of the state’s rules and rites as well as an understanding of how their income may be impacted.