New Bill Would Increase Cash Minimum Wage for Tipped Employees

Representative Donna Edwards (D-MD) has introduced a bill called “Working for Adequate Gains for Employment in Services Act” (WAGES Act), that would increase the minimum federal cash wage rate for tipped employees from $2.13 per hour to $3.75 per hour. The minimum cash wage would increase to $5.00 per hour beginning one year after the effective date of the legislation. Beginning two years after the effective date of the legislation, the minimum cash wage for tipped employees must be equal to at least 70% of the federal minimum wage rate, and no less than $5.50 per hour [H.R. 631].

Since 1966, the Fair Labor Standards Act (FLSA) has allowed employers to use a combination of a cash wage and tips to meet their minimum wage obligations for “tipped employees.” A “tipped employee” is defined under 29 USC 203(t) as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” Employers may currently pay tipped employees as little as $2.13 per hour and still be in compliance with the FLSA if they credit tips of $5.12 per hour against the minimum wage. Employers are required to make up any difference between the federal minimum wage rate and the combination of $2.13 per hour in cash wages plus tips to ensure that each employee makes at least the federal minimum wage rate of $7.25 per hour.

State minimum wage laws. Minimum wage laws vary by state. Employers must follow state laws if they provide greater benefits to employees. The following states do not allow tips to offset the cash minimum wage that must be paid to employees: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. The following states conform to federal law in 29 USC 203(m) that allows employers to pay tipped employees as little as $2.13 per hour: Indiana, Kansas, Kentucky, Nebraska, New Mexico, North Carolina, South Dakota, Texas, Utah, Virginia, and Wyoming. Twenty-five states currently have cash minimum wage rates below the proposed $3.75 per hour. Under the proposed federal legislation, employers in these states would be required to pay tipped employees covered under the FLSA at least $3.75 per hour beginning 90 days after the bill's enactment.

Alabama, Louisiana, Mississippi, South Carolina, and Tennessee do not have state minimum wage laws.

The bill has been referred to the House Committee on Education and the Workforce for further consideration.