The Massachusetts Attorney General’s Office recently published guidance regarding how a new tipped-employee law is to be applied. Employers must now compare the tips earned by an employee, plus the service rate, to the full minimum wage at the end of each shift and pay any shortfall to the employee. This change went into effect January 1, 2019.

Wage Rates for Tipped Employees in Massachusetts

Under Massachusetts law, employees who make at least $20 per month in tips may be paid a “service rate,” which is lower than the minimum wage, so long as they are given written notice that they will be paid the service rate and the employees’ total wages (tips plus the service rate) equal the minimum wage. The service rate and minimum wage for the next five years are:

Effective Date

Service Rate

Minimum Wage

January 1, 2019

$4.35

$12.00

January 1, 2020

$4.95

$12.75

January 1, 2021

$5.55

$13.50

January 1, 2022

$6.15

$14.25

January 1, 2023

$6.75

$15.00

The “Grand Bargain” Legislation Creates Confusion on the Timing of Calculations

On June 28, 2018, Governor Baker signed into law the so-called “Grand Bargain” legislation. This sweeping statute increased the minimum wage and the service rate for tipped employees (as listed above), created a new paid family and medical leave program, and gradually phased out Sunday premium pay for retailers.1 This legislation added the following obscure clause to the service rate statute:

provided, however, that an employer shall calculate the amount required by clause (2) at the completion of each shift worked by the employee, with payments to the employee to be consistent with section 148 of chapter of 149.

There was no explanation of what this language meant, until now.

The Attorney General’s Guide Adds Clarity

According to the Attorney General’s guidance, the added clause means that at the end of every shift, an employer must compare the service rate paid plus tips earned by the employee to the full minimum wage during the period in question. If the service rate paid, plus tips earned, is less than the minimum wage the employee would have earned for that shift, the employer must pay the difference. This assessment must be calculated on a shift-by-shift basis. That is, tips earned in one day in excess of the minimum wage cannot offset a shortfall on another day. The minimum wage differential amount needed to accommodate any shortfall must be included in the next regular paycheck.2

It is important to note that the law refers to “each shift,” not “each day.” This word choice appears to mean that if a tipped employee works two shifts on one day (for instance, a breakfast shift and a dinner shift), the calculation must be completed separately for each shift.

An Example

The Attorney General offers an example of a restaurant server who is paid the service rate and works a 5-hour shift on Tuesday along with a 5-hour shift on Saturday. The employee earns $20.00 in tips on Tuesday and $100.00 in tips on Saturday.

For Tuesday, the employee is paid a service rate of $4.35 x 5 hours = $21.75. The employee received $20.00 in tips for a total of $41.75. However, the minimum wage is $12.00 x 5 hours = $60.00. The difference is $60.00 - $41.75 = $18.25.

For Saturday, the employee is paid service rate of $4.35 x 5 hours = $21.75, and earns $100.00 in tips = $121.75. This sum is greater than the minimum wage ($12.00 x 5 hours = $60.00).

Even though the employee was paid well above minimum wage for the week as a whole, each shift must be examined separately. Thus, the employee is owed an additional $18.25 – the differential for Tuesday – in the week’s paycheck even though the employee made that amount up on Saturday.

Recommendations for Compliance

To comply with this new law, employers using the service rate for tipped employees in Massachusetts should implement processes to ensure that the employees are paid at least the minimum wage for each shift. Such procedures may include making sure that employees report all their tips in a shift, so the calculation is accurate. Also, if an employer is working with a third-party payroll processor, the employer should assure that the payroll processor understands this new law and is applying it appropriately.