Rhode Island has joined the list of states adopting laws governing the payment of tips. House Bill (HB) 7510, which is codified as Public Law 2022-245, mirrors nearly all tip-related aspects of the federal Fair Labor Standards Act (FLSA) and its regulations. The law became effective on June 28, 2022.

Under the law, tips are the sole property of the tipped employee. A “tipped employee,” just as under the FLSA, is one who regularly and customarily receives at least $30 in tips per month. Employers and employees are prohibited from entering into any agreement that would allow the employer to keep any portion of an employee’s tips.

Nevertheless, employers may implement a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips. To this end, employers must notify their employees of the amount of any required tip pool contribution amount, may take a tip credit only for the amount of tips each employee ultimately receives, and may not retain any of the employees’ tips except as required for distribution to a valid tip pool or to offset the actual charges assessed by a third-party credit card company (discussed further below).

If an employer does not take a tip credit and instead pays its employees full minimum wage, it may allow non-tipped, non-exempt employees to participate in a tip pool. Exempt employees, as defined under Part 541 of the FLSA regulations, may not participate in a tip pool whether a tip credit is taken or not.  The FLSA in this regard is a bit broader, as the FLSA would exclude non-exempt “managers” or “supervisors” from participating in a tip pool (although the FLSA itself would do so for most employers), whereas Rhode Island law is limited to exempt employees only.

Sums assessed to customers as service charges and distributed to employees may not be counted as tips (either for establishing an employee’s eligibility as a tipped employee or for determining application of the tip credit) but, just as under the FLSA, may be used to satisfy the employer’s minimum wage and overtime requirements.

If an employer must pay a credit card company a percentage of each credit card sale and that sale includes tips, the employer may deduct that percentage from the employee’s tips. The employer must notify the employee that it is taking this deduction and any such deduction may not reduce the employee’s wage below the applicable minimum wage. Furthermore, the employer must pay the employee all amounts due no later than the next regular payday and may not withhold any amount while awaiting reimbursement from the credit card company.

If you have any additional questions or concerns about Public Law 2022-245 or tip law in general, please contact the Jackson Lewis attorney(s) with whom you regularly work.