How the Tip Credit Works

Posted 5.3.2018

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.

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