The federal minimum wage law has a special exception for servers, bartenders, and other employees who receive tips: These tipped employees can be paid much less than the minimum wage per hour (in most states), as long as they earn enough in tips to bring their hourly total up to at least the full minimum. Right now, the federal minimum wage is $7.25 an hour. But federal law allows employers to pay tipped employees as little as $2.13 an hour!
This practice of paying tipped employees less is called taking a “tip credit,” meaning the employer gets to credit part of the employee’s tips against its minimum wage obligation. Not all states allow a tip credit: California, for example, requires employers to pay tipped employees the full state minimum wage. And some states allow a lower tip credit, requiring employers to pay more per hour than federal law would mandate. (The more protective law governs in wage and hour matters.)
That measly $2.13 took effect back when the minimum wage was $4.25 an hour. In other words, the tip credit was supposed to be half of the minimum wage. But as the minimum wage increased, the wage for tipped employees stayed the same, part of a compromise to get the wage hikes passed. Now, Congress is contemplating raising both the minimum wage and the amount tipped employees must be paid. According to an article in today’s New York Times (“Proposal to Raise Tip Wages Resisted“), Senator Tom Harkin has introduced a bill that would raise the minimum wage to $10.10 and the tipped employee wage by 95 cents per year until it reaches $7.10. Further increases would be tied to inflation.
As is perhaps evident from the title of the article, this proposal is facing plenty of pushback, primarily from restaurant owners. And of course, it’s unclear how Congress would agree on a minimum wage and tipped employees wage increase when they can’t pass a farm bill or extend unemployment benefits. But at least this problem has hit the radar of the U.S. Senate and the nation’s paper of record.
Want to know more about your state’s law on tips, including tip credits, tip pooling, and who gets to keep those mandatory service charges the house tacks on to the bill? We’ve got a set of articles — one for each state and the District of Columbia — on this very topic; select your state from the list at State Laws for Tipped Employees.