Millions of Americans work in the service industry and expect that customer tipping will play a role in their compensation. If you’re in the service industry, you’ve probably had weekends with amazing tips and other shifts where you’ve felt like you’ve been stiffed, and these irregular compensation patterns can make it more challenging for you to budget appropriately. This tip-based compensation style can also complicate matters in the event that you are injured and plan to file for workers’ compensation. Below, we explain how wage loss calculations are typically made for workers who collect tips as part of their compensation package.
Wage Loss Calculations For Tip-Based Workers
In Minnesota, there is a pretty standard system for calculating wage loss benefits for employees who aren’t salaried or whose paycheck amounts vary week to week or month to month. To calculate an average weekly wage, the state uses the following formula:
1. Use paystubs to determine how much money the worker earned over the last 26 weeks (including overtime or holiday pay).
2. Divide that total amount by the number of days the employee worked during that 26-week period. This will give you an average daily earning amount.
3. Divide the total number of days worked by the total number of weeks worked during that 26-week period. This will give you an average amount of days worked per week.
4. Multiple the average daily earning amount by the average number of days worked per week. This will give you an average weekly wage for the past 26 weeks.
Let’s throw some numbers in to make it clearer. Let’s say you earned $30,000 over the last 26 weeks, and you worked 118 days during that stretch. $30,000 divided by 118 days equals $254.24 per day. You worked 118 days over the last 26 weeks, but you took two weeks off during that stretch for vacation, so you actually earned that much in 24 weeks. 118 divided by 24 equals 4.916 days worked per week. We now multiply the daily earning amount ($254.24) by the average number of days worked per week (4.916) to get an average weekly wage of $1,250. Under Minnesota wage loss laws, you’re eligible to collect up to two-thirds of that amount for wage loss benefits, or roughly $833 a week.
The issue that some tip-based workers will run into is if they have been untruthful in how they report their tips for tax purposes. Some tip-based workers under-report or even neglect to report their tips so that they don’t have to pay in as much at tax time, and that can be very detrimental in the event that you need to collect workers’ compensation. Your wage loss benefits will be based on your earnings that you report for tax purposes, so if you haven’t been truthful, know that your wage loss benefits will likely be much less than your actual take home amount. This is one of the risks you take if you under-report your tips.
If you’re struggling to calculate how much you’re owed as a tip-based employee who was recently injured on the job, connect with an injury lawyer like the team at Hey Workers. We’ll ensure you get everything you’re entitled to receive, and we’ll see if you’re eligible for other types of compensation after your injury.
For more information about collecting wage loss benefits after a work injury in Minnesota, connect with the team at Hey Workers today at (844) 439-9675.
