Employees who owe money for child support or maintenance (alimony) may have their wages (including tips) garnished by the employer, so that the child support or maintenance can be paid to the ex-wife or ex-husband. Employers who have to make payroll deductions are faced with difficult choices when trying to understand and implement Colorado law concerning tip income.
Tip income (tips) are common in many jobs, including but not limited to: waiters, waitresses, other waitstaff; dog grooming, estheticians; casino dealers; bellhops and other hotel staff; taxi drivers; limousine drivers; car valets; and hair stylists and barbers. In some occupations, tips are the only source of income. For other jobs, such as waiters and waitresses, minimum wage is less than the regular state minimum wage, based on the expectation that the server will receive tip income.
In connection with a Notice to Withhold Income for Support, “income” means wages – and wages include tips declared by the individual or tips imputed to bring the employee’s gross earnings to the minimum wage for the number of hours worked, whichever is greater.
Tip income for purposes of child support and maintenance income assignments can be computed as follows: (1) if the employee on a daily basis or by the end of each pay period declares his or her tips for purposes of reporting to the Internal Revenue Service, tips can be determined for purposes of the income assignment; or (2) if the employee does not declare his or her tips on a daily basis or by the end of a pay period, tips can be determined by subtracting the employee’s hourly wage from $7.05 per hour (the current Colorado minimum wage), multiplied by the number of hours worked in the pay period.
If the employee does not on a daily basis or by the end of each pay period declare his or her tips for purposes of reporting to the Internal Revenue Service, it makes it impossible for the employer to determine the greater of tips declared by the individual or tips imputed to bring the employee’s gross earnings to the minimum wage for the number of hours worked. In this situation, an employer can take the position that tips reported to the IRS are zero, and the employee’s tip income for purposes of the income assignment is hourly wage paid, plus the difference between hourly wage paid and Colorado minimum wage ($7.05 per hour).
If an employer cashes out credit card or check tips to an employee on a daily basis, the employee’s disposable earnings that are subject to an income assignment may be insufficient to pay the obligee (the ex-husband or ex-wife) the amount required to be paid under the income assignment. For example:
Employee disposable earnings subject to income assignment: $1,000.00
Minus check, credit and debit tips disbursed to employee on a daily basis: ($500.00)
Employee paycheck at the end of a pay period: $500.00
Income assignment requiring 65% of disposable earnings to be paid by employer to obligee: ($650.00)
Amount paid by employer to obligee, from obligor’s paycheck: ($500.00)
Additional liability for employer, not available from obligor’s paycheck: ($150.00)
To prevent this from happening, employers can consider implementing policies where employees who are subject to an income assignment do not receive their credit card, debit card, or check tips – until the end of the pay period, after the income assignment amounts have been paid by the employer. Frascona, Joiner, Goodman and Greenstein, P.C. can assist employers with creating and implementing policies to help resolve these types of problems.