No Tip Credit in MN

[MNDad01]

What is the name of your state? MN

I have yet another question for the legal minds of this great site!

My sister in law is working as a waitress. Her employer adds the amount of food she serves, then takes a percentage and says this is what she should have received for tips (even though she doesn't usually make that much for tips) and then deducts that from her paycheck.

This is what her last paycheck looked like:

Earnings Rate Hours This Period
Regular 6.1500 47.04 289.30
Regular 7.5000 4.05 30.38
Tips 340.99
Gross Pay $660.67

Deductions Statutory
Federal Income Tax -69.46
Social Security Tax -40.97
Medicare Tax -9.58
MN State Income Tax -31.34
Other
Tips -340.99

Net Pay $168.33

From the searching I've done, I found that MN is a no tip credit state, but I can't find out exactly what that means.

Is is legal for them to take the tips out of her check? Shouldn't she be getting the $6.15 AND her tips? And also, is it legal for them to be ASSUMING an amount for her tips rather than figuring out exactly what she is really getting?

 

[tkilburn]

server's tips and payroll

1) Tip Credit, in short, means an amount an employer adds to the hourly wage to get to minimum wage. From what you have posted about the check detail, the employer is not doing this so they are in compliance with the state's law.

2) Servers should be claiming 100% of their tips. It is possible the employer is taking 8% of her gross sales since at year end the tips reported vs the gross sales must be at least this amount or the employer must then allocate tips and pay taxes on the allocated portion. However, it is my understanding that the employer should not be claiming tips for the server.

3) Tips are added to the server's paycheck so that taxes can be calculated. Since tips are typically received by the server in cash, the tips are then deducted from the net wages since that money has already been received. Otherwise the server would be receiving the tips twice.

Hope this helps

 

[ajs09876]

I Don't know

I found this on the Minnesota wage and hour web page. I'm not sure if I'm understanding it correctly, but it looks like they can't do that. Can anyone else interpret this better than I am?

"Minnesota wage law contains no provisions for tip credits.

Remember, the tip credit allows employers of tipped employees—usually employees who earn $20 to $30 minimum of tips per month—to pay them a lesser amount as a minimum wage, because the tips that these employees earn makes up the difference. Sometimes the tip credit is expressed as a percentage of the overall minimum wage. For instance, in Missouri, the tip credit is 50 percent of the overall minimum wage. Sometimes, the tip credit, on the other hand, is express as a static amount of money. For instance, the federal tip credit makes the federal minimum wage for tipped employees a current $2.13 per hour.

In Minnesota, however, according to the state minimum wage law as it stands now, there is no tip credit at all. That means that employers of tipped employees must pay them the full minimum wage, no matter what sort of tips these employees are pulling in from their customers. And as in most states—tip credit or not—these employers cannot withhold the employees’ tips in order to make up the difference on their end.'

 

[tkilburn]

Irrelevant

I found this on the Minnesota wage and hour web page. I'm not sure if I'm understanding it correctly, but it looks like they can't do that.

The employer in this case, is NOT using a tip credit. If you look at the detail posted about the paycheck, the gross wages show the hours times 6.15 per hour. Therefore, there is no tip credit being applied here.
If a tip credit were being used, the pay would be the hours multiplied by an amount less than minimum wage.

The OP's question really has to do with deducting tips from the wages and he/she thought maybe the tip credit had something to do with that, but it does not. Therefore, tip credit is not relevant to the OP's question

Hope this helps

 

[ajs09876]

What does this statement mean then?

And as in most states—tip credit or not—these employers cannot withhold the employees’ tips in order to make up the difference on their end

 

[ajs09876]

the reason I think they're wrong

I used to waitress at a huge restaraunt (like a big chain) And they did tax us on our tips, but they never deducted from the minimum wage we were getting the tips we supposedly earned. That doesn't seem fair at all! I just thought that a big organization would know the law and follow it. Are you from Minnesota tkilburn?

 

[tkilburn]

you are confusing the situation

I used to waitress at a huge restaraunt (like a big chain) And they did tax us on our tips, but they never deducted from the minimum wage we were getting the tips we supposedly earned. That doesn't seem fair at all! I just thought that a big organization would know the law and follow it. Are you from Minnesota tkilburn?

First off, I am not in MN but that doesn't change anything.
You need to look back at the paycheck detail. They are not taking anything away from the OP.
They are paying the wages owed:

Regular 6.1500 47.04 289.30
Regular 7.5000 4.05 30.38

Then they are adding the tips to get gross taxable wages.
Gross Pay $660.67

The taxes are figured on the gross pay and subsequently deducted:
Federal Income Tax -69.46
Social Security Tax -40.97
Medicare Tax -9.58
MN State Income Tax -31.34

Then because the employee has already been paid the tips, the tip amount that was added in for tax purposes must be deducted. Otherwise, the employee would be receiving the tips twice. That then leaves the employee being paid their wages owed by the company (remember tips are paid by the customer) minus taxes

I can't really explain it any better than that. But the company is not taking away anything from the employee and none of this has anything to do with tip credit. As I said before, if the company was using the tip credit, the hourly wage shown on the check stub would be less than minimum wage.

Make sense now??

 

[ajs09876]

So sorry

I missed the part where they added the tips to the total. Makes complete sense now!

 

[MNDad01]

Thank you for all your help? I am still a little confused on one issue, though. The amount they are claiming she's making in tips isn't actually what she's making. Out of the $340 they are saying she's making in tips, she only actually received about $250. The $340 is a percentage of the amount of food she served, and they are assuming that the customers are actually paying the suggested amount for tips, but most of the time, they don't. Is that part legal, too?

 

[tkilburn]

That part is wrong

The company should not be deciding how much they THINK she should have received based on sales. The tips reported should be the actual amount recieved. However, my guess is that this would be an IRS issue due to the fact that she is paying taxes on an amount you say is fraudulent.
As I stated previously, if the company is claiming tips for her at a percentage, I bet it is at 8%. I would suggest she keep a log of tips received and then turn in the amount to the employer and ask that they claim the accurate amount for pay purposes.
If they refuse, at least she would have a written record of actual tips received.

It, in my opinion would not be a wage & hour issue since they are paying minimum wage and are not retaining tips.

Someone with more knowledge than I have in the actual laws could give you more information on that... cbg?

I was just really addressing the other questions in your post.

 

[MNDad01]

Thank you for all your help! I will have her keep a log and stand by to see if cbg has anything to add!
Thanks again!

 

[ajs09876]

I've been looking around...

I found this on a tax tip website;

"Tips & Taxes
There is a misconception that servers are required to report their tips as at least 8% of their sales revenue. 8% is simply a bottom line that the IRS uses when attempting to determine how much a server earned in tips over the year. So if a server sells $1,000 of food than the IRS is going to automatically assume that they took home $80 in tips that night. They're going to treat that $80 as taxable income and depending on what tax bracket the server is in they might get 25% of the $80 which is $20. So when a customer tips 8% it isn't all going to the government, it's simply that all of it is going to be taxable automatically.

To put it another way, if everyone tipped 8% the server would still make some money (albeit half of what is typical), it wouldn't all go to the government. Most service employees average 15-20% of their sales in tips, so using 8% as a default is conservative from the IRS's point of view. Servers are required to report ALL of their tips, even if they made 25% (or more) of their sales in tips. Naturally most of them will report far less than this, but still more than the default assumption of 8%. In places where credit cards are used the IRS can use the tips on charged receipts to estimate the amount of tips received from tickets paid in cash. The two are generally close to each other, so if a server shows 16% of tips on all of the charged receipts they'll be sending up a red flag if they underdeclare their cash tips too drastically (e.g. 6%).

Still when a server is stiffed they are still losing money - they're getting zero on a ticket that the IRS will assume they made at least 8% on, paying taxes on revenue they didn't make."

It seems to me that they would be using the 8% of sales that the IRS assumes. It's better to be on their good side. If your sister in law isn't making at least 8% of her sales in tips, I think it would be time to find another job. I'm in Minnesota, and 15% is considered average when I was a server

 

[Ozark_Sophist]

My two cents. I think it works like this. Keep track of the total tips earned. At tax time, calculate the difference between reported and actually earned in tips. If tips are less than reported, claim a refund. If tips are more than reported, pay more taxes.

Any thoughts?

 

[MNDad01]

Thank you guys for all your advice, it is much appreciated! Talked to my sister in law today and she's looking for another job!