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Challenging Injustice, Advancing Human Rights

The Unitarian Universalist Service Committee advances human rights through grassroots collaborations.

FAQs about Minimum Wage and Tips

After you've explored the frequently asked questions about the minimum wage and tips, don't miss these:

1. What is the "tipped minimum wage" or the "tipped credit"? What does the law say about what the minimum pay is for restaurant workers?

The United States Department of Labor's definition of a "tipped employee" is any worker who earns more than $30 per month in tips. The largest segment of tipped workers is employed in food service, such as servers, bussers, and food delivery workers. Tipped workers may also include parking attendants, car wash workers, nail salon workers, baggage porters, and bellhops.

An employer of a tipped employee is only required to pay $2.13 per hour in direct wages if that amount combined with tips at least equals the rate of the regular federal minimum wage (currently $7.25). If the employee's tips combined with the direct wages of at least $2.13 per hour do not add up to the federal minimum hourly wage, the employer must make up the difference. Individual states have varying minimum wages for both tipped and non-tipped workers.[1]

Originally, the federal tipped minimum wage was set at 60 percent of the full minimum wage; however, since 1991 it has been frozen at $2.13 per hour and overtime has decreased to less than 30 percent of the regular minimum wage.

2. If workers make less than the minimum wage in tips, the law dictates that their employee must make up the difference. Why is UUSC claiming that tipped workers make as little as $2.13 per hour?

As Waiting for Change, produced by the Restaurant Opportunities Centers United, reports, "Many tipped workers are unaware that their tips and hourly wages must add up to at least the minimum wage. At the same time, employers are unlikely to ensure that their workers are paid appropriately — it is up to the employees to know and understand this law. In practice, workers would need to keep track of exactly how much they received in tips during a work week and how many hours they worked — and if they were short they would have to ask their employer for additional wages."[2]

In addition, tips are frequently "pooled" or shared among staff. Under such conditions, even law-abiding employers can have trouble keeping track, and unscrupulous employers can take advantage of this complex system to illegally take a portion of tips for themselves.

"Even when employees file official complaints, employers rarely change their practices. In 2009 only 30 percent of employers that had violated the Fair Labor Standards Act were in compliance by a later investigation (U.S. Department of Labor 2009). The Department of Labor's Wage and Hour division, which is responsible for enforcing these laws, recently was criticized for leaving ‘low wage workers vulnerable to wage theft' as a result of ‘inadequate investigations.'"[3]

While a relatively small number of servers and bartenders at high-end restaurants in major cities earn high incomes, the restaurant industry overall is one of the nation's lowest wage sectors. The overwhelming majority of tipped workers in restaurants and other industries earn very low wages.

Read an in-depth policy brief on the tipped minimum wage by the National Employment Law project and find out more from the Employment Policies Institute.

3. Which part of the country actually has a tipped minimum wage of $2.13? Doesn't the minimum wage differ in each state?

The minimum wage for both tipped and non-tipped workers varies by state. As of 2013, 14 states use the federal minimum of $2.13 per hour, and 32 states plus the District of Columbia legislate a tipped minimum wage that is higher than $2.13 per hour. About half the country has a state tipped minimum wage of less than $3 per hour. Eight states have no tipped minimum wage, so tipped employees are paid at least the regular minimum wage.

For more complete information, visit the U.S. Department of Labor's web pages on tipped minimum wage:

4. Do all restaurant workers earn wages as low as $2.13 per hour? Don't bartenders and servers make a lot of money in tips?

Not all restaurant workers earn direct wages of exactly $2.13 per hour due to varying city and state minimum wages and employer practices. Many workers do make most of their money from tips, but between wage theft and lack of consistency with tips, workers often struggle to feed their families when they must rely entirely on tips for their livelihoods.[4] (Read chapter 4 of Behind the Kitchen Door, by Saru Jayaraman, for more on this.) Approximately 20 percent of restaurant-industry employment is made up of living-wage jobs, which are concentrated in the fine-dining sector and are disproportionately accessed by white men. See below to learn more about discrimination and occupational segregation in the restaurant industry.

5. What does it mean to "tip out" the hosts or bussers?

To "tip out" the staff at a restaurant is to participate in tip sharing. Many bussers and hosts do not receive direct tips, so servers and bartenders will either pool tips and share equally with all restaurant employees either voluntarily or as part of a mandated tip sharing procedure at the restaurant.[5]

6. If workers don't get paid their tip credit because employers don't follow the law, then how is changing the law going to help?

UUSC, along with our partner the Restaurant Opportunities Centers (ROC) United, is advocating for policy change because we believe that unscrupulous employers are enabled to break the law — by not honoring the tipped credit, through illegal practices of tip sharing and "shift pay," and through wage theft — because there is a pervasive culture of low standards. If employers were required to pay more than the appallingly low federal tipped wage of $2.13 per hour, it would be an important step toward valuing restaurant workers' hard work and improving standards to which the industry could be held accountable. The Wage and Hour Division of the U.S. Department of Labor is responsible for enforcing the minimum wage and has the power to investigate employers that are breaking the law.

7. Don't workers benefit from the informal nature of the business, in that they often get to keep their tips "under the table" pay that is not reported to the IRS?

As Just Dining explains, "The restaurant industry is notorious for paying workers cash ‘under the table,' having employees working off the books, not getting check stubs, and being supplied no clear written work rules or policies."[6] In short, restaurant workers can both benefit and be exploited from the informal nature of the business. While many workers may benefit from tax-free income, they also experience wage theft due to lack of regulation. If an employer steals tips from employees, the employees cannot report it because the entire system is "under the table."

8. What are the common ways that employers steal wages and tips from restaurant workers?

The most common ways that employers steal wages in the restaurant industry include the following:

  • Paying less than the minimum wage
  • Not paying workers for all the hours worked (such as having them clock out before cleaning up at the end of the night)
  • Illegal tip-sharing schemes
  • Taking a "cut" of pooled tips for management
  • Deducting credit card fees from tips left on a credit card
  • Deductions from wages, such as requiring employees to pay for their own uniforms
  • Giving checks that bounce
  • Denying workers' compensation

To learn more about wage theft in the restaurant industry, see ROC United's Behind the Kitchen Door: A Multi-Site Study of the Restaurant Industry and Wage Theft in America, by Kim Bobo.

9. Do you have any facts on how raising the minimum wage would affect small businesses and hiring new workers?

While many critics say that raising the minimum wage will cause small businesses to suffer, the reality is that states with higher minimum wages actually have healthy small-business sectors. States like California, where there is no tipped minimum wage (tipped employees are paid at least the minimum wage), have some of the fastest growing restaurant industries.

You can learn more about raising the minimum wage in hard economic times from Let Justice Roll or ROC-United.

10. What is a living wage?

The actual amount of a living wage varies depending on where a worker lives (since cost of living and median wage vary by geographic location), but most cities and states set the living wage at 100 percent or more of the necessary income for a family of four to survive above the poverty line or 110 percent of the federal minimum wage. Learn more about living wages in specific areas.

11. If restaurant employers provide higher wages and benefits, won't they just pass the cost along to consumers, making it more expensive to dine out?

Many consumers worry that the cost of dining out will skyrocket if wages are raised for restaurant workers. However, ROC-United conducted a study to look at that issue and found that food costs would rise by half a percent over the next three years if legislation raising the minimum wages went into effect. This means that a hamburger that costs $8 today will cost $8.18 in 2015. For more detailed information, check out ROC's Dime a Day: The Impact of Miller/Harkin Minimum Wage Proposal on the Price of Food.

Additional FAQs about Restaurant Workers


[1] "Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (FLSA)," U.S. Department of Labor, accessed February 14, 2013, http://www.dol.gov/whd/regs/compliance/whdfs15.htm.

[2] Sylvia A. Allegretto and Kai Filion, Waiting for Change: The $2.13 Federal Subminimum Wage, February 23, 2011, accessed February 14, 2013, http://www.epi.org/publication/waiting_for_change_the_213_federal_subminimum_wage/.

[3] Sylvia A. Allegretto and Kai Filion, Waiting for Change: The $2.13 Federal Subminimum Wage, February 23, 2011, accessed February 14, 2013, http://www.epi.org/publication/waiting_for_change_the_213_federal_subminimum_wage/.

[4] Saru Jayaraman, Behind the Kitchen Door (New York: Cornell University Press, 2013).

[5] Saru Jayaraman, Behind the Kitchen Door (New York: Cornell University Press, 2013).

[6] Workers' Rights Center and the Interfaith Coalition for Worker Justice of South Central Wisconsin, Just Dining: A Guide to Restaurant Employment Standards in Downtown Madison, accessed February 14, 2013, http://workerjustice.org/wp-content/uploads/2012/12/JUST-DINING-GUIDE-final-update-12-11-12.pdf.