Roundtable Takeaways: Alternative Pay Models and COMPS Order #36 January 10,2020

We hosted a roundtable with more than 50 restaurateurs to discuss changing pay models in the wake of rising wages. Todd Fredrickson, a labor law attorney at Fisher and Phillips and part of our Legal Resource Center, helped clarify legalities around different models. 

Here are the big takeaways from the discussion:

Alternative pay models and considerations

We’re primarily seeing three alternative pay models:

1. Tip pooling between the front and back of the house. 
To institute this, you must pay at least full minimum wage to everyone in both the front and back of the house.

2. Removing tipping altogether and charging a service charge or autogratuity.
Any non-discretionary service charge or autogratuity counts as income toward the business, and can be distributed as you see fit. This CANNOT count toward the tip credit (which means if you’re implementing a service charge with no tipping, you need to pay at least full minimum wage), and you need to pay taxes on it. 

3. Keeping tipping but adding a small service charge (usually 2 or 3 percent) for the back of the house or to boost wages or benefits across the board.
The same rules apply to this service charge as with the above example -- this is taxable income, and it cannot count toward the tip credit.  However, you can still use the tip credit for traditionally tipped staff that are receiving regular tips – but only their tips count toward the tip credit. 

Some restaurants are doing a combination of these. For example, one restaurant is instituting a tip pool between the front of the house and back of the house AND adding a 3% DMW (Denver Minimum Wage) service charge to the bill as well. For more information on tips vs. service charges, go here

Whatever model you choose, it is important to make sure it is legal! We have a free resource through our Legal Resource Center (Todd Fredrickson with Fisher and Phillips) who will offer limited free legal advice to CRA members and discounted rates beyond that. For more information call the CRA office at 303-830-2972.

Other legal considerations as you pursue an alternative model 

Remember, managers, supervisors, and owners can never share tips.
Under Federal law, owners, managers, and supervisors cannot share in the tip pool. The definition of a manager or supervisor is someone who regularly directs the work of two or more full-time employees or the equivalent (e.g. four part-timers) -- regardless of title. 

Taking the tip credit limits who you can share tips with.
If you take the tip credit, tips must be shared only with employees who are in customarily tipped positions (i.e., not the back of the house). Paying everyone at least full minimum wage gives you more latitude on tip-sharing, but owners, managers, and supervisors are always excluded.

If your restaurant does voluntary tip-outs, you cannot interfere with these tip-outs in any way. 
If you suggest a tip-out amount, it’s not voluntary. This means there can’t be any penalty for a server not tipping out their bartender or barback.

COMPS Order #36 

The final ruling on COMPS Order #36 was adopted January 22, 2020, and takes effect March 16, 2020 (except for the overtime exemption threshold, which will go into effect July 1, 2020). Find the Order here. Highlighted changes:

Minimum Wage
Effective January 1, 2020, State minimum wage is $12 per hour. This means the tipped minimum wage is $8.98 per hour. (Note: Denver minimum wage is $12.85/hour and the tipped minimum wage is $9.83/hour.)

Overtime exemption threshold
Beginning July 1, 2020, employees must be paid a salary of AT LEAST $684 per week (which equates to $35,568 annually) to be EXEMPT from overtime. This is consistent with the Federal that went into effect January 1, 2020. Importantly, tips DO NOT count toward this total -- and hourly workers are never exempt from overtime. They must also meet the duties test for exempt employees to be exempt from overtime, which is not changing. Find the duties test here, and expected exempt salary increases below.

     Date                                      Weekly Overtime-Exempt Salary

     July 1, 2020                           $684.00/week ($35,568 per year)

     January 1, 2021                     $778.85/week ($40,500 per year)

     January 1, 2022                     $865.38/week (45,000 per year)

     January 1, 2023                     $961.54/week ($50,000 per year)

     January 1, 2024                     $1,057.69/week ($55,000 per year)

     January 1, 2025                     The 2024 salary adjusted by CPI

Employees who work at least five consecutive hours are entitled to an uninterrupted and duty-free meal period of at least 30 minutes. Employees must also be given a compensated 10-minute rest period for each 4 hours of work. If an employee doesn’t get a 10-minute break, you have to pay for that extra ten minutes — and backpay can add up quickly if you fail to do so. The only exception to the rest period rule is if on a given workday, or in writing covering up to a one year period that is signed by both parties, the employee and employer agree voluntarily and without coercion to have two 5 minute breaks. Rest breaks must be long enough for an employee to use the restroom or rest in the designated break room. Make sure your employees are not only getting their rest periods, but also acknowledging that they received them by either signing a statement before getting their paycheck or otherwise confirming this electronically.

If you require employees to wear a uniform (such as a logoed shirt), you must provide one free. This is a change from prior law, when you could take a 50 percent deposit on the uniform. This applies only to dress or equipment that an employee would not already reasonably own -- if part of your dress is something the employee would already own (e.g. black pants), then you do not need to provide it.

If you have questions on any of these items, please call our office at 303-830-2972. 

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