By: Chris Mason
“Tips understandably consume little thought for the average diner after departing a restaurant but should be a matter carefully considered by the restaurant’s owners and management. Tips must be managed correctly to comply with legal requirements and to avoid fines and lawsuits. Three areas of needed attention are particularly acute for employers – minimum wage requirements, “tip pooling,” and tax reporting.
Minimum Wage for Tipped Employees
Under Arizona law, employee minimum wage currently increases by $.50 per hour annually. For 2019, it is set at $11 per hour, but may be higher in certain communities, like Flagstaff, which currently requires a minimum wage of $12 per hour. These rates represent a sizeable premium over the federal minimum wage of $7.25 per hour. A “tip credit,” permitted by federal and Arizona law, can be essential in assisting employers by allowing earned tips to count towards the minimum wage requirement. Arizona law limits the credit to a maximum of $3 per hour, so employers may pay tipped employees a wage of $8 per hour ($9 per hour in Flagstaff); however, this is only permissible if those employees are, in fact, earning at least $3 per hour in tips during their shift. Employers need to be especially mindful of times when employees may not be earning tips at all, such as during training or company meetings. It is the employer’s responsibility to ensure that tipped employees are earning the required minimum wage during their shifts, and to make up any deficiency when tips fall short. “
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