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How do restaurants and minimum wage work together?

On Behalf of | Feb 21, 2022 | Wage And Hour Claims

Many states have been raising their minimum wages for workers, but people may get confused when talking about which workers are affected. Tipped employee minimum wages are $2.13 on the federal level. Some states, like California, have raised tipped minimum wages to attempt to keep up with inflation.

Why does minimum wage matter?

Labor advocates argue that minimum wage isn’t keeping up with inflation anymore. The current federal minimum wage of $7.25 has been that amount since 2009. By 2019, the federal minimum wage amount should probably have been $11 an hour. A person on minimum wage makes about $15,000 annually, which is below the poverty line.

Who gets minimum wage?

In 1942, the Supreme Court established that any tips given to an employee belong to the employee. In 1965, the government began taxing employee tips as part of their wages. Wage and hour claims for tipped employees began in 1966. In 1988, restaurants had to pay their share of FICA taxes on any tip income for their staff. Every state demands that employers pay waitstaff $7.25 an hour; the federal minimum is $2.13 per hour for tipped employees, but employers pay the difference when tips are too low.

Do minimum wage laws affect tipping?

Eliminating tipped minimum wages looks good on paper, but there are issues. There are more wage and hour claims in Alaska and California since eliminating tipped minimum wages. Many service people say they make less money annually after the changes as people are less willing to tip a server making the same as other employees. The cost of living has gone up, but the federal minimum wage fails to take that into account.

A federal minimum wage increase would help employees who make too little. Employees already making over minimum wage won’t see differences. However, when tipped employees get raises, customers are less likely to tip, and employers pay more of the waitstaff’s salary because there are fewer tips. Better minimum wages help employees, but service industry companies might then hire fewer employees.