Michigan Tip pooling and Tip credit Laws | TipMetric 2020
In Michigan, 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 Michigan Department of Licensing and Regulatory Affairs.
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:
· Michigan state law allows for employers to take a tip credit. A tip credit is in place where all or part of the employee’s tips are counted toward their minimum wage requirements. Michigan does allow employers to take a tip credit.
· Qualified service staff are part of a valid tip pool. 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, Michigan has minimum wage standards. The federal minimum wage is $7.25 per hour and the minimum wage in Michigan is $9.45 per hour, as of 2019. As a result, Michigan employees are entitled to the higher minimum wage. Michigan does allow employers to take a tip credit but must pay tipped employees at least $3.59 per hour, meaning employers may take a tip credit of up to $5.86 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
Michigan allows for employers to require tip pooling or “tipping out,” 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. Also, employees are not required to pay more into the tip pool than is normal and reasonable. In addition, if an employee contributes to a tip pool and the employee’s combined take home pay is less than the state’s hourly minimum wage, the employer must make up the different.
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 outside of the establishment.
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
In some states, 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, the employer is allowed to deduct the employees share of the credit card processing charge. Michigan’s law does not specifically address this issue, so the employer may or may not incorporate this practice.
Persons employed within the hospitality industry in Michigan should have an understanding of the state’s rules and rites as well as an understanding of how their income may be impacted.