Utah Tip pooling and Tip credit Laws | TipMetric 2020

(Note: Restaurant Tips Distribution made simple, visit TipMetric.com to learn how to Eliminate Excel Mistakes, Reduce Tips Disputes & Liabilities and Save Time Processing Payroll with Software.)

In the state of Utah, 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 Utah can visit the website the Utah Labor Commission website for more information.

Tip Credits

The federal minimum wage is currently $7.25 and since Utah 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. This means that an employer may pay tipped staff as little as $2.13 per hour while the remaining $5.12 can be taken as a tip credit. If the employee does not make at least the federal/state minimum wage when combining their tips and the employer’s hourly wage, then the employer must make up the difference.

Tip Pooling

Utah 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. Employees receiving a restaurant tip are only required to contribute what is reasonable 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 management 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 Utah, 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) the employee realizes in Utah. This is the case because Utah regulations allow employers to do this.

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