Clarification for Washington Employers with Tipped Employees

The Washington Department of Labor and Industries (L&I) clarified existing policies on Tips, Gratuities, and Service Charges. Here are 5 points to review in your policies that apply to Tipped Employees:

#1.  All tips belong to the employee.

  • Existing policy: All tips must go to the tipped employee and employers cannot take a “tip credit” toward the employee’s minimum wage (tip pooling is permitted).
  • Clarification: The employer may have a policy prohibiting the employee from accepting tips or gratuities, but if a customer leaves a tip “in defiance of a policy” the employee must be permitted to keep the tip.

#2.  Exempt individuals may not be part of a tip pool.

  • Existing policy: Tip pooling can be mandatory however, per Federal and State guidelines, Managers and Supervisors may not be included in a tip pool.
  • Clarification: The interpretation of “Manager and Supervisor” now includes any individual that is “Exempt” under RCW 49.46.010(3)(c).
    • Note: Exempt employees can accept tips, but only for services that they “directly provide” to customers and they may not participate in a tip pool.

#3.  What is and is not a service charge?

  • Existing policy: A service charge is defined as a separately designated amount paid by the customer directly to the employer. These specific services might be listed on the receipt as a “Service Charge”, “gratuity, “delivery charge”, “porterage charge” or any mandatory gratuity that is automatically added to a bill.
  • Clarification: Examples of charges that the customer might think of as service charges but are not subject to this policy are; fuel surcharges, late fees, cancellation fees, or parking fees.

#4.  The percentage of a service charge paid to the employee must be disclosed.

  • Existing policy: Employers that impose an automatic service charge must disclose (on the customer receipt and menu) the percentage of the service charge that will be paid to the employees who served the customers.
    • Note: The employee portion of the service charge is paid in addition to hourly wages.
  • Clarification: If the employer does not “clearly designate” the percentage distributed to the tipped employee the entire service charge will be due to the tipped employee.
    • Note: The L&I’s guidance provides additional information and several disclosure examples.

#5.  Credit Card Fees and other deductions.

  • Existing policy: Washington law follows Federal guidelines for “transaction fees” that the employer is charged by a third party as a result of tips charged on a credit or debit card. The employer must pay the employee the amount of the tip but is permitted to reduce the payment by the percentage that the third-party processor charged the employer (or less).
  • Clarification: Although this confirmed that the prorated credit and debit card fees can be deducted, the new Policy clarified that the employer is not permitted to deduct cash register shortages or any other business expenses from tips, gratuities, or service charges paid to the employee.

It is recommended that Washington employers review and update their Tipped Employee policies to verify they are in compliance with the L&I’s New Administrative Policy on Tips, Gratuities, and Service Charges.