You often hear on the internet that restaurant service employees make below minimum wage. What’s the truth behind this?

In reality, no employee in the United States, tipped or not, makes $2.13/hour. That is simply a myth.

The Tipped Wage

Front of House (FOH) restaurant employees are allowed to be paid the “tipped minimum wage”, which varies by state. This minimum wage is typically lower than the non-tipped minimum wage. Front of House staff includes wait staff and other staff deemed to be customer facing (hence, front of house).

From below, the lowest tipped minimum wage is $2.13/hour, which is where the common statistic pushed by some biased interests comes from. However, NOBODY in America makes $2.13/hour. It simply does not happen. Here’s why.

Real Tipped Wage

Restaurant employees are REQUIRED by law to be paid the minimum wage if tips don’t make up for it. So the minimum amount a restaurant employee makes is the federal minimum wage, $7.25/hour, up to the local minimum wage, which in NYC is $15/hour. This is guaranteed. There is no legal period where employees make less than this gross of taxes. $15/hour is a far cry from $2.13/hour some people claim wait staff make, and in reality, many restaurant staff make far more money than that. That is simply the guaranteed minimum that they earn.

Minimum Wage Background

Feel free to skip parts of this if you already know how minimum wage works in different states.

Federal Minimum Wage

As of 2019, the current federal minimum wage is $7.25/hour. The tipped federal minimum wage is $2.13/hour.

State

States have their own minimum wage and tipped minimum wage.

State minimum wages vary from

State tipped minimum wages vary. At the lowest, is $7.25 (the same as federal minimum wage) or no specific law (such as in Alabama), in which case the federal minimum wage of $7.25 automatically applies.

Local Minimum Wage

Local Minimum Wage is set by a local municipality. For example, New York City has a $15 minimum wage for large employers, with a tipped minimum wage of $10. There is a necessary tip credit which boosts all wages of restaurant employees to $15/hour minimum (or $13.50/hour for employers with less than 10 employees). $15/hour minimum wage guaranteed is a far cry from the $2.13/hour that some would mislead you to believe.

Effective Minimum Wage

The effective minimum wage is the HIGHER of the federal, state, and local minimum wages.

State and local minimum wage cannot be lower than the federal minimum wage, as federal law supercedes that of state and municipal law. In order of precedence, it’s federal law > state law > municipal law. So for example, if a state says minimum wage is $5, the federal minimum wage of $7.25 still applies. If a state says minimum wage is $50, then that minimum wage applies in that state (since it still satisfies the federal minimum wage as required by federal law).

The law states that if the tipped minimum wage + tips don’t exceed the actual (non-tipped) minimum wage, then employers have to pay the difference. So restaurant employees are guaranteed to be paid at least minimum wage.

Why Tipping Doesn’t Make Sense

In the US, people recommend you tip as % of the food value. This is completely illogical. If tipping is supposed to compensate for service, should it not be based on the actions taken and not the food value? Does it take 3x the effort to open a $300 bottle of wine compared to a $100 bottle of wine?

What does this mean for Tipping Culture?

Unfortunately not much. Tipping culture is unlikely to change, reasons for which I’ll save for another write-up. There is social pressure to tip, which most people would rather do than face that social pressure. If you’re enlightened and brave enough, try not tipping. You’ll feel quite liberated 😉

Let us know your tipping stories and thoughts in the comments.