Tipped Employees Support Tipping

The most important aspect of tipping, is that servers support the tipping system. When the existing tipping system was threatened by ballot initiatives in Maine, Michigan, and Washington DC, hundreds of tipped employees rallied in opposition and urged the public not to change a system they strongly support. Tipping provides an incentive for exceptional customer service that creates unlimited earning potential for servers. Typically servers earn between $19-25 per hour but many earn significantly more.

How the Tip Credit Works

No server can ever legally earn less than the minimum wage, period. In every state and city in the United States, servers must earn the minimum wage, and most earn significantly more. 43 states and the District of Columbia allow restaurants to take what is called a “tip credit” where servers are paid a certain amount as a base wage and then earn money in tips. If the combination of the server’s base wage and tips does not meet or exceed the local minimum wage, then the restaurant must make up the difference to guarantee the server makes the minimum wage.

In reality, many servers make much more than the minimum wage and typically earn between $19-25 per hour with some earning significantly more. The tip credit system incentivizes servers to deliver excellent service, enables customers to reward servers for great service, and allows restaurants to keep labor costs in check.

The Tip Credit: Why it exists

Historically in the United States servers have received tips from customers for the service and hospitality that they provide. At the same time, restaurant owners invest in their businesses to create the best possible experience for customers that enables servers to earn more in tips. Recognizing the unique business model of table service restaurants, decades ago Congress created the tip credit system and its safeguards for employees. Under this system, tipped employees are guaranteed at least the minimum wage but are offered the potential to make significantly more. The tip credit exists in 43 states across the country and no state has eliminated the tip credit in over a decade. When there were recent attempts to eliminate the tip credit in Maine, Michigan, and the District of Columbia, lawmakers quickly to action to listen to tipped workers and to protect the existing tip credit.

Protecting Employees

The Fair Labor Standards Act provides strong protections to ensure that tipped employees never earn less than the applicable minimum wage. Restaurants face significant penalties and legal repercussions if they do not ensure that their employees are earning the applicable minimum wage. Employers must meet the following conditions in order to claim any tip credit:

  • A tip credit can be taken only against the wages of employees who customarily and regularly receive at least $30 per month in tips.
  • In cases where an employee’s tip earnings fall below the maximum permissible tip credit, the employer is responsible for providing the cash wage necessary to bring the employee up to the minimum wage.
  • The employer must notify the employee of the tip credit taken.
  • Employees must be allowed to retain all of their tips, except where tip pools are allowed.
  • Employers must have records documenting that employees earned tips in an amount at least equal to the tip credit claimed.
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