North Dakota Tip pooling and Tip credit Laws | TipMetric 2020
In the state of North Dakota, 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. Employees in the state of North Dakota can visit the website the North Dakota Department of Labor and Human Rights website for more information.
Tip Credits
The federal minimum wage is currently $7.25 and since North Dakota does not have a minimum wage, the state adheres the federal minimum wage. Tipped employees in the state are entitled to earn at least this amount per hour. North Dakota employers are allowed to take a tip credit of 33% of the minimum wage, meaning employers may pay a minimum of $4.86 per hour as long as the employee’s tips (along with the hourly wage) add up to the minimum wage. Employers are required to notify employees if a tip credit will be implemented.
Tip Pooling
North Dakota does allow employers to require tip sharing and tip pooling (or “tipping out”) and that pool is shared among staff that assist in serving customers as part of their regular job duties. With that in mind, a tip pool is only acceptable if tipped employees vote and 50% or more employees vote for it. The employer must keep a record of the vote, including the names of those who voted as well as the vote totals. Employees receiving a restaurant tip are only required to contribute what is reasonable into a tip pool and may also ensure that whatever they do keep meets the minimum wage requirements.
Employees who share in the tip pooling must also normally receive tips from a customer. This could include wait staff, bartenders, hosts and buss staff. Not included in this group are dishwashers, cooks and cashiers.
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 Job Responsibilities
In some environments, some employees may have multiple tasks as part of their overall job responsibilities. According to a 2018 federal law change, if a tipped employee performs related non-tipped activities at the same time or around the same time of engaging in tipped duties, the employer may take a tip credit, even though some of the employee’s time is spent on non-tipped activities. If a tipped employee spends time during the shift performing non-service-related tasks (i.e. running errands for the establishment outside of the workplace), then the employer may not claim a tip credit for that time spent on those non-related tasks.
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 North Dakota, 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 processing fee to accept credit cards from customers (for example, 3% of the total bill charged to the credit card), and that customer leaves a tip as part of the credit card payment, the employer is allowed to deduct the employee’s share of the credit card processing charge (for example, 3% of the bill charged to the card) from their total tip amount. This is the case because North Dakota law does not specifically address this issue either way.
Persons employed within the hospitality industry in North Dakota should have an understanding of the state’s rules and rites as well as an understanding of how their income may be impacted.