Anyone who has worked in the service industry knows how rapidly things can change from one shift to the next.
One night’s tips might cover the monthly rent; another might be just enough to afford weekly groceries. Tipped workers have little choice but to accept the uncertainty, often depending on customer generosity and employer integrity.
Now Rhode Island has added a little more protection for tipped workers to its law books.
In June, the state enacted a law that prohibits employers from retaining workers’ tips and sets deduction requirements for credit card processing charges. The statute also creates new guidelines for tip pooling, which in the past has been used by some establishments to illegally pay part of the wages of nontipped, “back of the house” workers such as cooks and dishwashers.
The measure aligns with much of the tip-related provisions of the federal Fair Labor Standards Act, and Rhode Island joins several other states in adopting laws governing the payment of tips.
Some observers say the Rhode Island statute is even-handed, protecting the tips of the workers who earn them but allowing employers to deduct processing fees for tips made on credit cards in many circumstances.
“It’s a smart law,” said Paul Bagdan, professor of hospitality at Johnson & Wales University.
The new tip protection statute, which applies to all employers in Rhode Island, makes it clear that tips are the “sole property” of the tipped employee. The need for that clarification has grown over the years as the use of credit cards has become more common in tipping, according to Brian Warrener, associate professor in JWU’s College of Business.
What use to be mostly a cash transaction – leaving a few extra dollar bills on the restaurant table for the server – is now mostly done on a credit card receipt, which then involves the business in the collection and distribution of tips.
“Employers are being thrust into the middle of that transaction,” Warrener said. “And more mistakes have been made [in distributing those tips], on purpose or not.”
Sen. Meghan E. Kallman, D-Pawtucket, says “gray areas” in tip collection and distribution motivated her to sponsor the legislation in the Senate last session to prevent wage theft.
“We needed to eliminate … legal gray areas in which employers were getting away with wage theft,” she said in an email response to questions. “And in restaurants especially, there were big gray areas.”
The areas included forced “tip pools,” in which tipped employees – anyone who regularly received more than $30 a month in tips – contributed their gratuities to pay the wages of back-of-the-house workers.
Under the new law, such pools can include nontipped employees only if the employer pays full minimum wage – $12.25 an hour – for workers and does not take any “tip credit,” meaning using gratuities in the minimum-wage calculations. (Under Rhode Island law, employers may pay tipped employees a wage of as little as $3.89 per hour, so long as the tips for the week push the hourly rate to at least $12.25.)
The pooling of gratuities can still be required among tipped employees, but the establishment must notify employees of the amount of the contribution, and the establishment can’t take the tips for other purposes, the law says.
[caption id="attachment_415185" align="alignright" width="300"]
A DIFFERENT METHOD: Providence restaurant Gracie’s, operated by Gracie’s Ventures Inc., eliminated tipping in 2020, instead implementing a 20% fee on dining bills that are shared equally among all staff members.
PBN FILE PHOTO/JAMES BESSETTE[/caption]
In fact, in early August, U.S. Department of Labor sued the owners of a Newport restaurant chain, accusing them of violating federal wage laws between 2016 and 2021, including illegally participating in tip pooling.
The lawsuit filed in U.S. District Court in Rhode Island alleges Christopher Bender and David Crowell, the owners of Stoneacre Brasserie, Stoneacre Garden and the now-closed Stoneacre Tapas in Newport, improperly included themselves and several managers in tip pooling at some of the restaurants while also taking a trip credit toward the minimum wage obligations. The lawsuit seeks compensation for more than 80 employees.
Another common practice addressed in the new statute is paying credit card service fees with employee tips.
While the new tip protections don’t entirely prohibit that activity, employers are restricted on when they are allowed to deduct processing fees.
“Credit card companies have a service charge on each sale, around 1% to 3% depending on the company, and some businesses will deduct from the employees’ tips to pay that fee,” said Greg Henninger, an attorney at Littler Mendelson P.C.’s Providence office. “The new law doesn’t prohibit employers from taking from employees’ tips to pay that fee, but that amount taken out cannot reduce the pay below the minimum wage.”
While the new law improves transparency in the service industry, some feel bigger moves are needed to bring change.
“So much in food service is temporary that you’re just fighting for scraps,” said server Meg Armstrong, who works at a Federal Hill restaurant that she asked not to be identified. “I really wish it were more in the direction of doing away with tipping altogether.”
Indeed, many restaurants nationwide in recent years have switched to flat service charges that are shared among staff members instead of tipping, in part because of claims that tipping can facilitate racism, sexism and wage theft.
In 2020, downtown Providence restaurant Gracie’s, operated by Gracie’s Ventures Inc., implemented a 20% tipping fee, equally shared among all staff members. The team-sharing model raised employee wages beyond the state minimum wages, the restaurant said.
But Bagdan and Warrener say a shift to do away with tipping hasn’t worked for all restaurants. Most notably, New York restaurateur Danny Meyer eliminated tips in favor of service charges at his Union Square Hospitality Group restaurants in 2015 but reversed course five years later, in part because the COVID-19 crisis had upended the industry but also because many diners and servers remained attached to tipping.
Tipping is deeply entrenched in North American service culture, making the possibility for a complete transition away from it complex, Kallman said.
“Moving away from tipping will require a critical mass of restaurants, bars and other service industry businesses to do it together; it has to be a kind of system change within the industry,” she said. “It’s very clear that the tipping system does not treat all workers the same way and can be a way of avoiding responsibility for paying living wages.”
As of now, however, Rhode Island’s new protections will provide clarity in situations such as when employers are collecting tips through credit card transactions, observers say.
For instance, the tips made through credit cards must now be distributed by the next regular payday and cannot be withheld because the employer is waiting for the disbursement from a credit card company, the law says. Also, employees must be notified about credit card service-charge deductions. The intent is to increase transparency in the collection and distribution of tips.
“Whenever there is not transparency, there are always questions,” Bagdan said.
