Hospitality and flexibility are hallmarks of the restaurant industry and why nearly 90% of consumers enjoy going to restaurants. Tipping is why so many people choose restaurants as a first job, a side job for extra income, a job while in school, a second chance, or a career.

Federal law requires that every employee earn at least the federal minimum wage, or the higher state or local minimum wage in 29 states and 55 municipalities. 

Restaurant operators pay tipped employees a base hourly wage to which the tip amount the employee makes is added. If this combined wage is not equal to the required hourly minimum wage, the restaurant operator is required by law to make up the difference.
Research has shown that tipping creates higher earning potential for tipped employees, but it also helps restaurants with slim profit margins recruit and retain top talent. 

Employees, consumers, and voters have opposed ending the tip credit. Recent attempts to eliminate the tip credit in Chicago, Maryland, Michigan, Virginia, New Mexico and Maine were soundly defeated after tipped workers spoke out about why they prefer the tip credit. While the tip credit has not been eliminated by states in more than two decades, some like the District of Columbia, are considering doing away with it. 

If the tip credit is eliminated, many restaurants would move to an hourly wage-only system, terminate tipping, reduce employee hours, operate with fewer employees, and raise prices to cover higher wages. What’s more, tipped employees would likely earn less than they currently do. The math is simple; eliminating tipping is harmful to employees and customers.

Policy Brief
Tip Credit Policy Brief
October 30, 2021