Tipped Worked in Today’s World

Written by Cecil Mattson, 2L of Texas A&M University School of Law

A Very Brief History of Tipping

Tipping originated in European aristocratic culture, where wealthy guests would slip money to their host’s servants, presumably to demonstrate their thanks, and perhaps to flaunt their wealth.  The habit was picked up in America sometime in the mid-1800s, as a demonstration of the tipper’s knowledge of European aristocratic customs.  Though many Americans soon saw tipping as classist, tipped work with no base pay was embraced by business owners.  Particularly in the restaurant and railroad industry, employers saw tipped work as a way to exploit their disproportionately Black employees, push the risks of business to employees, rather than business owners, and mimic the economic structure of slavery, which had recently been partially prohibited by the 13th Amendment.

Soon, tipping became illegal in some states, because of the exploitative nature of the tipping business model.  Those bans eventually were overturned, and tipping is now legal in every state.

An Even Briefer History of the Minimum Wage:

President Roosevelt once explained, in reference to setting a minimum wage, that “no business which depends for existence on paying less than living wages to its workers has any right to continue in this country”. In 1938, a federal minimum wage of $0.25 per hour ($5.25 in today’s dollars) was introduced. Since then, inflation aside, the total cost of living has accelerated. People didn’t need to pay for a phone and internet to view their work schedule in 1938, and many cities were designed around walking and public transit, thus eliminating the cost of a vehicle for some workers.  Modern workers simply have more expenses related to their ability to work. As such, the minimum wage needed to change over the years. Right now, the federal minimum wage is at $7.25 per hour.

The Minimum Wage and Tipping Combined:

Exceptions for tipped work, in which sub-minimum wages could be paid to employees that customarily received tips, cropped up in various forms from 1938 to today. In 1966, a “tip credit” scheme was introduced to the federal minimum wage laws. The tip credit scheme permitted employers to pay their employees sub-minimum wages, but only if the tips that the employees received made up the difference between the sub-minimum wage and the actual minimum wage. Any disparity between the sub-minimum wage and the actual minimum wage would have to be paid by the employer. Minimum wage, and the application of tip credit, has changed a lot over time and location. The Department of Labor provides an interactive map demonstrating these changes.

Here’s What Federal Tip Credit Laws Look Like Now:

The Numbers:

• The federal minimum wage is $7.25.  
• Tipped minimum wage is $2.13, and tips are used to make up the $5.12 difference. If tips amount to less than $5.12, the employer must pay the difference.  
• Some states have additional rules, or have outlawed the tip credit. Check out this table for more information.

The Work:

• An employer can only use the tip credit scheme for employees actually engaged in tipped work, such as serving customers.
• The employee’s job duties must follow the “80/20 Rule”
• A tipped employee must be made aware that they are being paid with a tip credit
• More information about work requirements can be found on the US Department of Labor website.

What is the Impact of Tip Credit Work?

Reliance on tip credit work has some serious drawbacks for employees. The income owed to tipped workers to make up the difference between their sub-minimum rate and the actual minimum wage is hard to track and calculate, so restaurants often get away with noncompliance. This results in some employees taking home far less income than they are actually owed, without even being aware of the problem. Furthermore, the societal impact of tipped work is deeply problematic. Not only are tipped employees subject to unpredictable income, they also are more vulnerable to sexual harassment and discrimination.  

Economic Impact:

Volatile income, which can result from circumstances such as an inconsistent schedule, or reliance on tips, can negatively impact workers’ finances. People with volatile incomes are less likely to have savings, which makes life events like moving, changing jobs, and dealing with illness very difficult, if not impossible.

Societal Impact:

People in tipped work are uniquely vulnerable to sexual harassment. As many as 90% of women and 70% of men in the restaurant industry, known for a heavy reliance on tipped work, have experienced sexual harassment on the job. Often, a customer will imply that if a tipped employee does not comply with or accept sexual harassment, the employee will lose their tip. Because the tipped employee relies on the tip for income, they often feel as though they cannot put a stop to customers’ unsafe or inappropriate behavior.

Another frequent inappropriate behavior that tipped workers have to deal with is discrimination. Studies suggest that customers tip Black waiters less, on average, than other similarly situated waiters. Additionally, customers often admit to intentionally denying tips to employees that they perceive to be gay or transgender.  

What Can You Do?

The first thing that you can do as a tip-credit employee is hold your employer accountable. A lot of restaurants are out of compliance with tip credit rules, meaning that many tipped employees are owed money. Second, you can reach out to your elected officials, and tell them that reliance on tips as a source of income increases incidents of sexual harassment, discrimination, and poverty. If you’re among the majority of Americans that support one fair minimum wage for all workers, let them know!

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