TIPS ARE INCLUDABLE IN THE AVERAGE MONTHLY WAGE

TIPS ARE INCLUDABLE IN THE 

AVERAGE MONTHLY WAGE

By Attorney Dennis Kurth

Snow, Carpio & Weekley

Today it might be hard to believe that tips should not be included in the average monthly wages of injured waiters, waitresses and bartenders but that was not always the case.  In fact, for the first sixty-five (65) years of the Arizona workers’ compensation statute and jurisprudence, tips were not included in setting the average monthly wage of injured service-workers.

The statue, A.R.S. §23-1041(D) then, referred to the “monthly wage” as the average wage paid…” in the month before the injury.  That language had been considered clear and unambiguous in referring only to the wages, hourly or otherwise, actually paid by the employer to the worker. Tips had been considered excludable because they are gratuities paid by customers directly to the workers.

Seeking to reconcile conflicting opinions from the Arizona Court of Appeals and to set the law straight, the Arizona Supreme Court, in Senor T’s Restaurant (1982)  addressed the issue head on.
The claimant, a waitress/bartender, was paid $425.80 a month in hourly wages and claimed, without any documentation whatsoever, that she averaged $100 a week in tips.  Apparently, the restaurant had a tip reporting policy of which she claimed to be unaware.

The Industrial Commission’s ALJ accepted the claimant’s testimony and added $400 in tips to her average monthly wage.  The restaurant appealed arguing that the statute was clear and tips were not included in the average monthly wage. The carrier also claimed it would be unfair for them to pay benefits on wages not subject to premium charges.

In workers’ compensation jurisprudence nationally, the mood was decisively in favor of including tips in the average monthly wage.  The overwhelming majority of jurisdictions had so decided and Arthur Larson, the respected national authority, was also in favor.

The Supreme Court, in Senor T’s, was more than accommodating.  Seizing upon the claim that the statue was ambiguous, the Court embarked on a quest of statutory interpretation. Ambiguous statutes, said the Court, must be construed in view of the purposes they are intended to accomplish and the evils they were designed to remedy.

The purpose of the law, of course, was to realistically compensate injured workers fairly so that they would not become charges on the public welfare.  To do so, compensation should be paid based upon the workers’ actual earnings. Everyone knew and expected that restaurant employers often paid service workers less than the minimum wage because they assumed that the workers would also receive tips from customers.  The purposes of the law would be undermined by excluding tips from the average monthly wage calculation. Further justifying their opinion, the Supreme Court raised the specter of a constitutional impediment (equal protection) to excluding tips.

Finally, the Court had to parry the restaurant’s argument that only tips which were reported to the employer (and the IRS) should be included.  Acknowledging that it might seem inequitable, the Court still purposefully declined to impose such a tip-reporting requirement and the Commission’s addition of $400 in tips to the claimant’s average monthly wage based on her testimony alone, stood.

The better practice for service employees, of course, is for them to keep an actual record of actual tips earned and indeed, some do, even if only on a calendar for example.  That makes the proof a lot easier.  So does the courageous support of a comparably-experienced co-worker. The statute itself, although re-lettered (A.R.S. §23-1041(G)) has never been changed but the law on tips in the average monthly wage has long since been considered finally settled.

For more information on Workers' Compensation or Social Security Disability, please contact Snow, Carpio & Weekley toll-free at 855-325-4781 or visit our website at www.workinjuryaz.com. We serve the entire State of Arizona and have offices located in Phoenix, Tucson, Yuma and Lake Havasu City.