Gratuity Fees and Service Charges

Tips GratuityAlthough there are federal gratuity laws set in place through the Fair Labor Standards Act, State and local government can choose to enact legislation that goes above and beyond those requirements.

Pennsylvania 

-In Pennsylvania tipped employees hourly wage is higher than the federal requirement of $2.13 with a rate of $2.83 per hour (so long as the employee’s tips bring the total hourly wage up to the state minimum wage) as a part of the Pennsylvania Minimum Wage Act of 1968 (“PMWA”).

-The PMWA also states that, with respect to tipped employees, “where the gratuity is added to the charge made by the establishment, either by the management, or by the customer, the gratuity shall become the property of the employee.”

-Also, under the Pennsylvania Wage Payment and Collection Law (“WPCL”), “Every employer shall pay all wages, . . . , due to his employees on regular paydays designated in advance by the employer.”

Philadelphia

Philadelphia’s Gratuity Protection Bill (“GPB”) makes deducting fees from tips left by customers illegal in Philadelphia.

-The GPB specifically states that “[e]very gratuity shall be the sole property of the employee or employees to whom it was paid, given, or left for, and shall be paid over in full to such employee or employees.”

-The GPB also states that:  “Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment.”

New York

New York Labor Law provides that no employer or his agent or an officer or agent of any corporation, or any other person shall demand or accept, directly or indirectly, any part of the gratuities, received by an  employee,  or retain  any  part  of  a gratuity  or  of  any charge purported to be a gratuity for an employee. This provision shall not apply to the checking of hats, coats or other apparel. Nothing in this subdivision  shall  be construed  as  affecting  the  allowances  from  the  minimum  wage  for gratuities in the amount determined in accordance with the provisions of article  nineteen  of  this  chapter  nor  as  affecting  practices   in connection  with  banquets  and  other  special  functions where a fixed percentage of the patron’s  bill  is  added  for  gratuities  which  are distributed  to employees, nor to the sharing of tips by a waiter with a busboy or similar employee.

Does the New York Labor Law consider service charges “tips?” 

There is a rebuttable legal presumption that any charge which is not for food and drink is a tip. To prove that a charge is not a tip, the employer must expressly notify and clearly state to customers that a charge for the administration of a banquet, special function, or package is not a gratuity or tip. The employer has the burden of demonstrating, by clear and convincing evidence, that the notification was sufficient to ensure that a reasonable customer would understand that such charge was not purported to be a gratuity.

Moreover, a combination charge, part of which is for the administration of a banquet, special function or package deal and part of which is to be distributed as gratuities to the employees who provided service to the guests, must be broken down into specific percentages or portions, in writing to the customer.

Hawaii

Section 481B-14 of the Hawaii Revised Statutes states, in its entirety, “Any hotel or restaurant that applies a service charge for the sale of food or beverage services shall distribute the service charge directly to its employees as tip income or clearly disclose to the purchaser of the services that the service charge is being used to pay for costs or expenses other than wages and tips of employees.”

Massachusetts

(b) No employer or other person shall demand, request or accept from any wait staff employee, service employee, or service bartender any payment or deduction from a tip or service charge given to such wait staff employee, service employee, or service bartender by a patron. No such employer or other person shall retain or distribute in a manner inconsistent with this section any tip or service charge given directly to the employer or person.

(c) No employer or person shall cause, require or permit any wait staff employee, service employee, or service bartender to participate in a tip pool through which such employee remits any wage, tip or service charge, or any portion thereof, for distribution to any person who is not a wait staff employee, service employee, or service bartender. An employer may administer a valid tip pool and may keep a record of the amounts received for bookkeeping or tax reporting purposes.

(d) If an employer or person submits a bill, invoice or charge to a patron or other person that imposes a service charge or tip, the total proceeds of that service charge or tip shall be remitted only to the wait staff employees, service employees, or service bartenders in proportion to the service provided by those employees. Nothing in this section shall prohibit an employer from imposing on a patron any house or administrative fee in addition to or instead of a service charge or tip, if the employer provides a designation or written description of that house or administrative fee, which informs the patron that the fee does not represent a tip or service charge for wait staff employees, service employees, or service bartenders.

(e) Any service charge or tip remitted by a patron or person to an employer shall be paid to the wait staff employee, service employee, or service bartender by the end of the same business day, and in no case later than the time set forth for timely payment of wages under section 148.

(f) Whoever violates this section shall be subject to all of the civil and criminal penalties and remedies set forth in section 27C. Any person or employer who violates this section shall make restitution for any tips accepted, distributed or retained in violation of this section, together with interest thereon at the rate of 12 per cent per annum. An employee claiming to be aggrieved by a violation of this section may proceed pursuant to the second paragraph of section 150. The attorney general or, under said section 150, an employee may bring an action under this section within 3 years of any violation of this section.

(g) No employer or person shall by a special contract with an employee or by any other means exempt itself from this section.

Montana

(b) For the purposes of this subsection (6), “service charge” means an arbitrary fixed charge added to the customer’s bill by an employer in lieu of a tip. It is collected by the employer and must be distributed directly to the nonmanagement employee preparing or serving the food or beverage or to any other employee involved in related services, pursuant to a tip pool agreement.

Washington

(1) An employer that imposes an automatic service charge related to food, beverages, entertainment, or porterage provided to a customer must disclose in an itemized receipt and in any menu provided to the customer the percentage of the automatic service charge that is paid or is payable directly to the employee or employees serving the customer.

(2) For purposes of this section:(a) “Employee” means nonmanagerial, nonsupervisory workers, including but not limited to servers, busers, banquet attendant, banquet captains, bartenders, barbacks, and porters.

(1) An employer that imposes an automatic service charge related to food, beverages, entertainment, or porterage provided to a customer must disclose in an itemized receipt and in any menu provided to the customer the percentage of the automatic service charge that is paid or is payable directly to the employee or employees serving the customer.

(2) For purposes of this section:(a) “Employee” means nonmanagerial, nonsupervisory workers, including but not limited to servers, busers, banquet attendant, banquet captains, bartenders, barbacks, and porters.

Los Angeles

SEC. 184.00. PURPOSE.

In recent years, hotels in the LAX area have instituted the practice of adding a “service charge” of 15% to 20% of the bill for banquets and other large group events.  The service charge is typically listed as a line item on the bill. Some hotels pass a portion of the service charge to the workers who actually performed the services, while other hotels retain the entire service charge. Currently, there is nothing illegal about this practice. Since hotels have instituted the practice of adding service charges to bills, many hotel workers have reported a significant reduction in the gratuities they receive from hotel guests. Thus, many hotel customers reduce or eliminate gratuities (tips) they would otherwise pay to service workers because they assume that the workers receive the “service charges,” which are added to their bills. By way of this ordinance, the City seeks to improve the welfare of service workers at the LAX-area hotels by ensuring that they receive decent compensation for the work they perform. Accordingly, to the extent that LAX-area hotels institute or continue the practice of charging their customers “service charges,” they will be required by this ordinance to pass the entire service charge on to the workers who actually performed the services for which the service charges are billed. Whereas the LA-area hotels derive a distinct benefit from their location near LA, they have both the ability and responsibility to support the local workforce by engaging in fair employment practices.

SEC. 184.02. HOTEL EMPLOYERS’ RESPONSIBILITIES.

  1. Service Charges shall not be retained by the Hotel Employer but shall be paid in the entirety by the Hotel Employer to the Hotel Worker(s) performing services for the customers from whom the Service Charges are collected. No part of these amounts may be paid to supervisory or managerial employees. The amounts shall be paid to Hotel Worker(s) equitably and according to the services that are or appear to be related

to the description of the amounts given by the hotel to the customers. The amounts shall be paid to the Hotel Workers in the next payroll following collection of an amount from the customer. Without limitation of the foregoing:

  1. Amounts collected for banquets or catered meetings shall be paid equally to the Hotel Workers who actually work the banquet or catered meeting; and
  2. Amounts collected for room service shall be paid to the Hotel Workers who actually deliver food and beverage associated with the charge.
  3. Amounts collected for porterage service shall be paid to the Hotel Workers who actually carry the baggage associated with the charge.
  4. This section does not apply to any tip, gratuity, money, or part of any tip, gratuity, or money that has been paid or given to or left for a Hotel Worker by customers over and above the actual amount due for services rendered or for goods, food, drink, or articles sold or served to the customer.

CURRENT INVESTIGATIONS AND CASES:

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See also Federal, State, and Local Laws and Regulations and  Wage and Hour Laws

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