Do Restaurants Have to Pay Minimum Wage?

Young Puzzled WaitressThe short answer is yes, restaurants have to pay minimum wage, but minimum wage is not the same for all employees. Though must people think of minimum wage as the lowest wage a production company or business can pay employees for their time, there is actually a second minimum wage. This is the tipped minimum wage, which sets the minimum per hour compensation for employees that will also receive a tip income.

What is the tipped minimum wage, and who can be paid at this rate?

The standard minimum wage has been raised multiple times over the last two decades, but the tipped minimum wage has remained stagnant at $2.13 since 1991. It was originally intended to be exactly half of the standard minimum wage, but lawmakers have failed to enforce increases, allowing it to drop to only 29% of the federal minimum wage.

This failure to raise the tipped minimum wage has forced consumers to make up the difference. While 10% gratuity was once standard, it has now risen to between 15% and 18% of the bill before taxes.

Tipped wages are, however, protected by law. If a tipped employee can prove that their standard wages and tips, when added together, total less than the standard minimum wage, then the employer must make up the difference.

This means that, in fact, restaurant employees are guaranteed never to earn less than the current minimum wage in any pay period. Most states also have a minimum for earned tips per month, ensuring that every server is awarded a minimum of $20 to $30 in tip income.

Whether or not a restaurant has to pay an employee the standard minimum wage or the tipped minimum wage depends on whether or not the person being paid receives a share of the tips. This varies from restaurant to restaurant depending on their hiring and compensation practices.

What is the standard minimum wage?

The current federal minimum wage has been frozen at $7.25 since 1999. Many states, however, have elected to raise the local minimum wage, to ensure the quality of life for citizens working in low-wage jobs. Many states are also moving to make restaurant, or tipped, worker wages a set percentage of the standard minimum wage.

Some restaurants, however, are not bound to pay employees the standard, or tipped, minimum wage. If the restaurant is owned and operated by family only, if they generate less than $500,000 dollars in business per year, and if they do not participate in any form of interstate commerce, they are not legally required to pay employees the minimum wage.

What are some ways that tips are divided when the tipped minimum wage is used?

Many restaurants collect all the tips that servers receive into a “tip jar” or a single financial account, and then redistribute them between employees at the end of the pay period. This can benefit both employees and employers in several ways.

First, it ensures that all of the tip income is correctly recorded and reported for tax purposes. It is paid out to employees as a portion of their regular paycheck, and it is taxed as income for state, federal, and Social Security tax purposes. This ensures that enough taxes are taken out of the wages, preventing most restaurant employees from owing a large tax sum against their tip wages at the end of the year.

Second, it ensures that every tipped employee receives a fair and equal share of the tips. This typically makes server’s income more stable, and prevents a slow night from significantly impacting the server’s paycheck.

Unfortunately, there are also disadvantages to this tipping system. It prevents an employee from enjoying the benefit of an especially large tip. If a waiter or waitress does an especially fine job, and the customer tips an extra 5% or 10% as a result, the server does not receive any more for that tip than they would ordinarily, because it simply goes into the larger pot.

This can not only be financially limiting for servers, but also removes the service-based payment system from tipping. If the tip is shared between the entire serving team, then servers are not longer motivated by the tips they receive to serve their customers well. The merit system is destroyed when the server who earns a tip cannot expect to keep that tip.

This system also allows the restaurant industry to underpay non-service employees. The way the law is written, anyone that works in the food-service industry, in a venue where tips are accepted, can be paid using the tipping minimum wage.

By spreading the tips out over all of the employees, the restaurant can get away with paying every employee, including cooks and dishwashers, no more than the tipped employee minimum wage. This saves the company more than 60% on non-service wages, but cuts wait staff tip wages by more than 50%.

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