WageWatch Ibrief Blog


Tip Credit Debate

There has been a lot of talk and debate lately regarding increasing the tip minimum wage.  The WAGES Act, introduced in Congress by Maryland Congresswoman Donna Edwards, if passed, would raise the federal tip minimum from $2.13 an hour.  This would be the first increase since 1991.  The federal tip minimum wage was originated in 1966 and was 50% of the federal minimum wage.  Today it is just 29.4% of the federal minimum wage.  Over half the states and the District of Columbia have tip minimums that are higher than the federal. These range from $2.33 an hour in Wisconsin to $7 in Hawaii.  Washington is one of seven states that has no tip credit law, so employers pay the state’s full minimum wage, currently at $9.19 an hour.  The other states that do not have tip credit regulations are: Alaska, California, Minnesota, Montana, Nevada, and Oregon.  Servers who work in these states receive the same minimum wage as all other workers.

Also being debated recently is changing to the tip-free European style of service where the employees are paid the full regular minimum wage or higher.  There are U.S restaurants that do pay by this model but they are in the minority and tend to be the “higher end” restaurants primarily in major US cities such as Los Angeles and New York City.  Some feel service standards would decline if there was no tipping.  On the other side of the debate is the concern regarding the poverty level among tipped employees.  More workers will be spending their careers in these industries, as better-paying jobs such as manufacturing and other fields are not expected to increase in the years ahead.

Under federal law and in most states, employers may pay tipped employees less than the minimum wage as long as it does not fall below the tip minimum wage and employees must receive enough in tips so that their base rate plus tips received equals at least the regular minimum wage.  The difference between the regular minimum wage and the base rate in which the employer pays is called a “tip credit”, which is essentially an employer credit towards payment of the regular minimum wage rate.  If a tipped employee does not earn enough in tips to bring his/her total compensation up to at least the applicable minimum wage (federal or state), the employer has to pay the difference.

Wage and hour enforcement of tip regulations is crucial.  Tipped workers may be shortchanged by employers that don’t know or understand the law.  Deductions to pay for things such as breakage, and cash register shortages are illegal if they reduce the pay below the minimum wage.  Overtime must be calculated on the full minimum wage and not just the tip minimum wage and overtime must include all service charges, commissions, bonuses and other remuneration. A specific tip credit notice must be provided to employees.  Tip pooling arrangements are permitted but cannot include employees who normally do not receive tips such as cooks and dishwashers.  Tip pooling also requires a special notice to the employees. There are specific rules regarding how to compensate tipped employees who work non-tipped jobs or duties for part of their time.  Tips paid by credit card also have specific regulations regarding the amount that the employer can deduct to recoup the fee for the credit card transaction as well as credit card tips must be paid to the employee on or before the next regular pay day.  Refer to your federal and state wage and hour resources for detailed regulations.

Remaining compliant with wage and hour regulations is an important task that Human Resources and Compensation performs for an organization.   Another important task they perform is to ensure fair and competitive pay practices.  For the good of your employees, it is helpful to analyze benefits survey data, compensation surveys and salary reports.  Having this information at hand allows you to plan a budget, including competitive employee salaries and benefits, which will help you to hire and retain a happy, talented team.  At WageWatch, our expert evaluators provide businesses in a large range of industries with accurate and beneficial benefits survey data, compensation surveys and salary reports to ensure that payment and benefits plans are on par with those in the industry. For more information on market compensation data, please call WageWatch at 888-330-9243 or contact us online (https://www.wagewatch.com/Contact/ContactUs.aspx).

This entry was posted on Thursday, September 5th, 2013 at 6:02 AM and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.