On June 28, 2022, Rhode Island Governor Daniel McKee signed new “tip protection” legislation. The statute prohibits employers of tipped employees from retaining employee tips, creates new requirements for tip pools, and sets requirements for deductions from tips for credit card processing.

Existing Law Regarding Tipped Employees

Rhode Island allows employers to take a tip credit against the general minimum wage (currently $12.25 per hour).  Employers may pay tipped employees a wage of at least $3.89 per hour so long as the tips for the week make up the difference ($12.25 - $3.89 or $8.36 per hour).  Employers are required to provide “substantial evidence” that the tips each employee receives each week bring their earnings to at least the minimum wage.  That “substantial evidence” can be a form signed by the employee listing their tips received for the week.  These requirements were not changed by the tip protection statute and remain in effect.

The New Statute

The new tip protection statute applies to “tipped employees,” which are any employees “engaged in an occupation in which the employee customarily and regularly” receives more than $30 per month in tips.  The law applies to all employers in Rhode Island.

The tip protection statute first makes clear that tips are the sole property of the tipped employee.  Employers cannot take “any part” of a tip from an employee.  The only exception is for deductions for credit card processing fees, which may be taken from an employee’s tips if the employer notifies the employee of the deduction and the amount does not bring the employee below minimum wage.  Tips also must be paid no later than the regular pay day; tips cannot be withheld because the employer is waiting for disbursement from a credit card company.

The statute also outlines requirements for a valid tip pool.  A tip pool can be established among employees “who customarily and regularly receive tips,” so long as the employer (1) notifies the employees of the tip pool contribution amounts, (2) only takes a tip credit for the amount actually received by each employee, and (3) does not take any part of the tips for itself (except for credit card processing fees).  A tip pool can include employees who are not “tipped employees,” but only if the employer pays the full minimum wage and does not take any tip credit, and no exempt employees are included in the tip pool.  For instance, a restaurant could have a tip pool including all of its wait staff, and pay them $3.89 per hour, but if it wanted to include back-of-house employees such as cooks, it would need to pay the full minimum wage of $12.25. 

“Service charges,” that is, compulsory fees charged by an employer to a patron or customer, belong to the employer, not the employee.  If an employer chooses to distribute money from a service charge to employees, that amount can be credited against minimum wage obligations, like the tip credit.  Service charge distributions to employees do not count as tips when determining if an employee makes $30 per month in tips to be considered a “tipped employee,” though any tips received above the service charge do count in that calculation.

Recommendations

The statute took effect June 28, 2022, immediately upon signing.  Employers in Rhode Island with tipped employees should review their policies and practices to ensure (A) they are not retaining any portion of employees’ tips, (B) tip pooling arrangements comply with the requirements of the statute, and (C) employees are properly notified about tip pooling or credit card deductions.