Massachusetts Tip Laws: An Employer’s Guide to Compliance and Fair Labor/Fees

 

As the state with the second-highest cost of living in the country, Massachusetts holds employers to pretty strong wage regulations. Strict restaurant labor laws, including rules for tip ownership, tip credits, tip pooling, and more, help ensure that all employees earn living wages even with unpredictable tip income. By maintaining compliance with federal and state tip laws, employers can protect the rights of tipped workers, promote employee satisfaction, and motivate staff to work toward the success of the business.

What is a “tip” in Massachusetts?

According to the Massachusetts General Laws, a tip is a sum of money a customer presents to an employee as a gift for a service performed. A payment only counts as a tip when the customer gives it to the employee voluntarily.

Tips can come in the following forms:

• Cash
• Amounts included in credit card payments
• Amounts included in service charges
• Shares from valid tip pools

 

Under Massachusetts law, tips belong solely to the employee who received them. As an employer, you can’t keep or claim ownership of employee tips. You can only handle tips when distributing them from credit card payments, service charges, or valid tip pools.

Can employers collect tips on their employees’ behalf?

While employers can’t control employee tips, Massachusetts law lets them collect tips on behalf of employees through credit card payments, service charges, or tip pools.

• Credit card payments: Since customers cannot give credit card payments directly to employees, you can collect credit card tips on your employees’ behalf, then pass the money to the employees who earned them.
• Service charges: As we mentioned above, establishments can make their customers pay service charges and then distribute the earnings to employees. These earnings will count as tips if you clearly inform the customer that you will give the money to the employees.
• Tip pools: You can collect tips on behalf of your employees, combine the earnings into a group fund called a tip pool, and then distribute the shares based on agreed-upon percentages. However, under Massachusetts law, you need to inform the employees of the tip pool arrangement in advance.

Under Massachusetts law, you need to return all tips you collect back to the employees by the end of the business day.

Who qualifies as a tipped employee in Massachusetts?

According to Massachusetts law, a tipped employee is any employee who regularly and customarily receives more than $30 per month directly from customers as part of their job. If an employee doesn’t meet both conditions, they do not count as a tipped employee. This means that you can’t pay them the lower tipped wage or include them in tip pools.

Examples of tipped employees include:

• Servers
• Bartenders
• Baristas
• Food runners
• Bussers
• Barbacks
• Bellhops
• Vallets
• Hair stylists
• Nail technicians

What is the difference between a tip and a service charge?

In most states, tips and service charges are legally distinct. Typically, tips must be voluntary, while service charges are mandatory fees that the establishment adds to the customer’s bill. However, in Massachusetts, there is some overlap between the two terms.

Unlike many states, which don’t count mandatory payments as tips, Massachusetts lets employers request tips through service charges. As long as you clearly inform customers that the charge will go to service staff, you can treat service charges (or portions of service charges) as tips.

Massachusetts service charge tip rules

If you want to give service charges to employees and have the amounts count as tips, you must follow specific rules. By complying with these regulations, you can protect the rights of employees and customers while ensuring transparency and fair revenue distribution.

Employers must provide clear disclosure to customers

When collecting service charges, you must tell customers that you want to distribute earnings to employees. Otherwise, you cannot legally treat the service charges they earn as tips.

Only tipped employees may receive service charge tips

You can only distribute service charge tips to tipped employees, such as servers, bartenders, and hosts. You may not keep these portions or share them with managers, supervisors, or non-tipped staff.

Employers must provide written notice to employees

For transparency, you need to give employees a written notice of service charge tip details. The notice must clearly explain how you plan to distribute service charge tip earnings. This means outlining the factors that affect distribution percentages, such as role, seniority, and hours worked.

Employers must separate service charges from business income

For service charges to count as tips, you must list them in their bookkeeping records as employee income instead of business revenue. Mixing service charges with general revenue can lead to misclassification, potential wage violations, and tax issues.

Employers must distribute service charge tips by the end of the business day

Like with credit card tips and tip pooling shares, you must give employees their share of service charge tips by the end of each business day. This helps employees gain faster access to tip income and discourages employers from withholding or delaying tip payouts.

Minimum wage and tip credits in Massachusetts

At $15 per hour, the minimum wage in Massachusetts is one of the highest in the country. As an employer, you may take a tip credit of up to $8.25 per hour, which leaves your employees with a base wage of $6.75. However, if tips don’t bring the employee’s total earnings to the state minimum wage, you must make up the difference.

Massachusetts tip credit rules

Because tip income varies, Massachusetts requires employers to ensure all employees earn fair wages, regardless of any tip credit claimed. The state enforces strict rules to guarantee fair pay and transparency in the implementation of tip credit arrangements.

Employers must inform employees in writing

According to the Massachusetts minimum wage regulations, employers need to provide written notice at the time of hire if they intend to claim a tip credit. If you fail to meet this requirement, you lose the right to apply the tip credit and must pay all affected employees full minimum wage.

The written notice should include the following information:

• The base wage the employee will earn
• The tip credit amount that the employer will claim
• A clear statement indicating that the employee must use tips to bring total pay up to the state minimum wage
• Assurance that the employer will make up any deficit if tips fall short of the threshold

Employers may only claim the tip credit from tipped employees

Massachusetts law prohibits employers from claiming a tip credit from the wages of non-tipped workers. This includes employees who work tipped roles but receive less than $30 in tips per month.

Employers must track tips per shift

Under the Massachusetts minimum wage policy, employers must track all tips per shift. With this record-keeping system, it becomes easier to verify that each employee’s total shift earnings meet or exceed the state minimum wage of $15 per hour. If you don’t track tip income regularly, you could face a number of potential consequences, including loss of tip credit rights, back wages, triple damages, civil penalties, and legal action.

Tip pooling in Massachusetts

In Massachusetts, employers can create shared tip pools for eligible employees. These arrangements let you combine employee tips into one group fund, and then divide shares based on factors like role, seniority, or hours worked. This approach incentivizes teamwork and helps support staff, such as bussers and food runners, to gain more opportunities to receive tip income.

Massachusetts tip pooling rules

To ensure fair distribution of tip pool shares, Massachusetts enforces strict tip pooling rules. These dictate who can participate, how to notify employees, and when to distribute shares.

Only tipped employees are eligible for participation

Unlike other states, Massachusetts does not allow non-tipped employees to take part in tip pooling. This rule is designed to protect tipped employees, especially since they often earn a lower base wage, by ensuring their tips aren’t reduced or shared with staff who already earn full minimum wage.

Employers must provide written notice of tip pooling arrangements

Under Massachusetts law, employers must provide employees with a clear written notice about the details of tip pooling arrangements. The notice should explain:

• Who will participate in the tip pool
• How the pool will distribute shares
• How employers will distribute shares from mandatory service charges

Tip pool notices promote transparency. They help guarantee that all employees understand what they contribute and what their employer owes them. If you fail to provide written notice, you may lose your right to claim tip credit, become liable for back wages, or face civil penalties, fines, or legal action.

Employers must distribute shares at the end of each business day

Massachusetts law requires employers to distribute shares from tip pools at the end of each business day. This rule ensures employees get immediate access to their tip earnings, which often make up more than half of their total income. It also prevents employers from withholding or delaying tip payouts.

Employers may require participation

Massachusetts allows employers to require employee participation in tip pool arrangements as long as the establishment complies with the above rules. You can even require employees to join tip pools as a condition of employment.

Legal consequences of violating tip laws in Massachusetts

Employers who violate Massachusetts tip laws face different consequences depending on the type, severity, and intention of the offense. Typical consequences include wage claims, civil penalties or fines, and lawsuits.

Loss of tip credit

Massachusetts law prohibits employers from claiming tip credit if they violate certain requirements, such as failing to provide written notice or mismanaging tip pools. When this happens, you must pay employees the full minimum wage. This obligation often applies retroactively, forcing you to provide back pay for all affected pay periods.

Wage claims or lawsuits

Employees affected by tip law violations often seek remedies by filing wage claims with the Fair Labor Division of the Attorney General’s Office (AGO). In larger cases, such as violations that affect multiple employees, the employees may file lawsuits in court. If the claim is successful, employees can force you to give them:

• Back pay: The exact amount of wages the employer failed to pay
• Treble damages: Three times the amount of unpaid wages
• Legal fees: Compensation for attorney’s fees and court fees

Civil penalties

The Massachusetts Attorney General’s Office may impose civil penalties to deter violations of tip and wage laws. These penalties typically punish for serious offenses, such as willful, repeated, or systemic violations. Examples include:

• Deliberately withholding tips
• Allowing non-tipped staff to participate in tip pools
• Falsifying tip records

 

Unlike back wages, treble damages, or attorney’s fees, civil penalties do not compensate employee losses. Instead, they go directly to the Commonwealth and serve solely as punitive measures to discourage future violations.

Tip management made easy

Tip management in Massachusetts can be complex, especially with the daily recording and distribution requirements. Simplify the process by letting 7shifts tip management solutions streamline all tip-related tasks. Our platform automatically calculates employee tip payouts based on your distribution policies, then transfers earnings to employee accounts. It also gives employees real-time visibility on tip calculations and earnings, promoting transparency and trust within the team.