106 | Massachusetts Wage & Hour Peculiarities, 2025 ed. © 2025 Seyfarth Shaw LLP Tip Statute as prohibiting employers from ever permitting employees to create an unlawful tippooling system.614 Employers administering tip pools must ensure that “[a]ny 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 [in the statute].”615 As a practical matter, tips are usually cashed out daily, while proceeds from service charges are typically included in employee paychecks. E. The Tip Credit and Service Rate Both Massachusetts and federal law allow employers to pay a cash wage below minimum wage to customarily tipped employees if other statutory requirements are met.616 Under Massachusetts law, an employer may elect to pay tipped employees the “service rate”—which, since January 1, 2023, is $6.75 per hour.617 There is some ambiguity as to whether employers may pay the sub-minimum wage tip credit to employees who spend some portion of their working time performing “general preparation and maintenance duties.” Some federal appellate courts have held that where an employee spends more than 20 percent of his or her time performing preparation and maintenance duties, the employer cannot pay the employee the sub-minimum wage tip credit.618 The 20 percent rule began appearing in the Department of Labor’s Field Operations Handbook in the 1980s. Then, in 2018, the Department of Labor attempted to walk back the 20 percent rule, stating there was no ceiling on the amount of non-tip-producing work an employee could perform so long as the tasks were performed at the same time as the employee’s direct tip-producing work (or for a reasonable 614 Moore, 2006 WL 2423328, at *5 (finding that voluntary tip-sharing with non-service employees was lawful under previous Tip Statute, but after 2004 amendments an employer with knowledge of such arrangement must make reasonable efforts to stop the practice). 615 M.G.L. ch. 149, § 152A(e). 616 29 U.S.C. § 201 et seq.; M.G.L. ch. 151, § 7. 617 M.G.L. ch. 151, § 7, as amended by St. 2018, ch. 121, § 22. Under federal law, employers may take a “tip credit” against the minimum wage when an employee earns enough tips to make up the difference between the lower rate and the standard minimum wage. 29 U.S.C. § 203(m). 618 See, e.g., Marsh v. J. Alexander's LLC, 905 F.3d 610, 630 (9th Cir. 2018); Driver v. AppleIllinois, LLC, 739 F.3d 1073, 1075 (7th Cir. 2014) (“as long as the tipped employee spends no more than 20 percent of his workday doing non-tipped work related to his tipped work . . ., the employer doesn’t have to pay the full minimum wage (that is, the minimum wage without the tip credit) for the time the employee spends doing that work”); Fast v. Applebee’s Int’l, Inc., 638 F.3d 872, 880-81 (8th Cir. 2011). In addition, federal regulations require that employers disclose specific information about their use of the tip credit. See 29 C.F.R. § 531.59 (“[A]n employer is not eligible to take the tip credit unless it has informed its tipped employees in advance of the employer’s use of the tip credit of . . . [t]he amount of the cash wage that is to be paid to the tipped employee by the employer; the additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer, which amount may not exceed the value of the tips actually received by the employee; that all tips received by the tipped employee must be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and that the tip credit shall not apply to any employee who has not been informed of these requirements in this section.”).
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