Last week we talked about “tipflation,” tip creep and how customers are feeling the real effects of tip fatigue. It is clear that a lot of people, even in the service industry, dislike tipping more and more. It also doesn’t help when it appears that employers are becoming more reliant on tipping to pay their employees rather than less.
So how did we get here?
A (very brief) history of tipping
It is believed that tipping originated in medieval times when wealthy aristocrats would give extra coins to servants that provided superb service. The practice found its way to the United States through wealthy travelers who wanted to show off their status, despite many average citizens, on both sides of the pond, finding the practice condescending and classist.
Anti-tipping sentiments eventually won out in Europe where tipping is an uncommon practice today, but in the U.S. it expanded. After the Civil War, former slaves were regulated to jobs in the service industry where employers didn’t want to pay them and rather let them work for customer tips instead. Essentially, slavery 2.0.
Plenty of U.S. citizens still hated the practice, deeming it “un-American” for creating a hierarchy and many white customers in the South didn’t want to give money to Black workers. Thus prompting a brief anti-tipping movement in the early 1900s. This led to seven states attempting to abolish tipping entirely. The problem was that most of their laws made it criminal to accept a tip rather than to give one, and they were rarely enforced. It wasn’t long before those laws were repealed or stuck down for being unconstitutional and tipping was back.
Tipped employees and the FLSA
The first federal minimum wage was established as a part of the Fair Labor Standards Act of 1938 (FLSA), but it wasn’t until 1966 that a provision for tipped employees was added as an amendment. The provision was a “tip credit” that would allow employers to legally pay those employees less than the federal minimum wage assuming that tips would make up the difference. For years, the amount of the tip credit was tied to a percentage of the minimum wage (ranging from 40-60%). That changed in 1991 when the exact dollar amount was set at $2.13, 50% of the minimum wage at the time of $4.25. In 1996 when the minimum wage was increased, the tip credit remained the same.
Although the federal minimum wage for tipped employees is still set at $2.13, states are free to set their own minimum wages higher. Some states do not allow tip credits at all, and thus all employers must pay tipped employees at least the legal minimum wage. Washington has the highest minimum wage ($15.74), but there are plenty of states that are perfectly fine with the federal minimum for tipped employees. Check out where your state stands here.
Other rules to know
The definition of a tipped employee is an employee that “customarily and regularly receives more than $30 a month in tips.”
One hundred percent of tips must go to tipped employees and no portion of it may be retained by the employer for any reason, even if the employee does not take a tip credit for that employee, i.e. they are paid the “regular” minimum wage.
If an employer pools tips, they can only be distributed among tipped employees. To include non-tipped employees in the pool – such as managers, cooks, or dishwashers – is against the FLSA.
Brush up on all the federal regulations for tipped employees, including the laws around tips on credit cards, service charges, and recordkeeping here.