The tipped wage is base wage paid to an employee in the United States who receives a substantial portion of their compensation from tips. According to a common labor law provision referred to as a "tip credit", the employee must earn at least the state's minimum wage when tips and wages are combined or the employer is required to increase the wage to fulfill that threshold. This ensures that all tipped employees earn at least the minimum wage: significantly more than the tipped minimum wage.
Tipped minimum wage law in the United States
Federal law
The United States of America federal government requires a wage of at least $2.13 per hour be paid to employees who receive at least $30 per month in tips. If wages and tips do not equal the federal minimum wage of $7.25 per hour during any week, the employer is required to increase cash wages to compensate.
State law
Though the vast majority of employers are bound to the federal minimum wage, some states have chosen to increase the tipped minimum wage above the federal requirement. Seven states (and the territory of Guam) apply the same minimum wage to tipped and non-tipped employees. The other 43 states – including those without state minimum wage laws – have a lower minimum wage for tipped employees than for traditional employees, and require employers to make up for any wages that fall below the minimum wage. Hawaii, which has the highest-paid waiters and waitresses in the country (mean wage: $17.84/hour) has a minimum wage of $8.50 for tipped employees.
In the state of Alaska, California, Minnesota, Montana, Nevada, Oregon, Washington, same minimum wage are applied for both tipped and non-tipped employees. Tips collected by employees in these states will not offset employer's obligation to pay the wage, and tips is the additional income beyond the wage paid by employer.
Disagreement over consequences
There is disagreement among economists, business leaders, and labor activists regarding whether the tipped wage should be higher and whether tipped employees should receive a different wage than non-tipped workers.
Proponents of a different wage for tipped and non-tipped workers point out that the law guarantees tipped employees the same minimum wage that other workers receive. They argue that because restaurants have very thin margins, an increase in the minimum wage could lead to higher prices for consumers and fewer jobs available for potential employees. A 2011 study (the study was performed and paid for by Berman & Co.'s Employment Policies Institute which is owned and paid for by know lobbyist Rick Berman, also Berman has earned the nicknames "Dr. Evil," the "Conservatives' Weapon of Mass Destruction" and the "Astroturf Kingpin" for his repeated use of the strategy of forming dozens of non-profit front groups, attack-dog websites, and alleged think tanks that defend his corporate clients' interests by attacking their critics, allowing his paying clients to remain out of public view.) suggested that 2011's WAGE Act, which would have raised the minimum wage for all tipped employees in The United States, would have led to a cumulative decrease in 11 million hours worked by tipped employees. The same research found that each 10% increase in the cash wage paid to tipped employees tends to decrease hours worked by the affected employees by 5%. A 2012 study found that eliminating the tip credit tends to decrease employment in the U.S. restaurant industry. Others express fear that eliminating the tip credit would result in fewer tips. Some argue that eliminating the tip credit exacerbates income inequality by benefiting the more well-paid servers at the expense of the non-tipped back-of-the-house staff.
In Massachusetts, where the tipped minimum wage is $2.63, the average income of tipped waiters and waitresses is $12.88. In Washington State, where the minimum wage for wait staff is $9.47, the average wage is $13.25 after gratuity. Of the five states where wait staff earn the highest average income per hour, four have a tipped minimum wage below the non-tipped minimum wage. It is important to note, however, that these figures relate only to tips reported to the government for taxes, and that real tips may be significantly higher.
Opponents of the current minimum wage for tipped employees point out that the tipped minimum wage has remained stagnant since 1991 despite increases in the cost of living and in the standard minimum wage over that same time. The minimum wage for tipped employees represented 50% of the standard minimum wage in 1968. By 2010, it was 29% of the non-tipped minimum wage.