Tipped employees have fought to protect the longstanding tipped income system because of the greater earning potential it creates. Waitstaff at fullservice restaurants earn a median of $27 an hour, with the highest paid tipped employees making $41.50 an hour. It’s 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.

And research has shown that in addition to creating opportunities for restaurant workers to earn greater income, tipping also helps restaurants with slim profit margins recruit and retain top talent. 

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. Tipped employees make a base hourly pay to which the tip amount is added. If the combined base + tip does not equal the required hourly minimum wage, the restaurant operator is required by law to make up the difference. Thus, tipped employees do not make less than the federal, state, or local minimum hourly rate.

Employees, consumers, and voters have opposed ending the tipped income system. Voters in in Chicago, Maryland, Virginia, New Mexico and Maine soundly defeated attempts to eliminate the tip credit after tipped employees spoke out in opposition. And it's not just tipped employees who value the tipped income structure. A March 2022 Association survey found that 75% of customers prefer the existing tipping system. 

While some states and localities explore the idea of eliminating the tipped income system, restaurant operators and tipped employees continue to sound the alarm on the dangers of doing so. Many restaurants would be forced to switch to a higher hourly wage-only system, which would lead many to terminate tipping, reduce employee hours, operate with fewer employees, and raise prices. What’s more, tipped employees would likely earn less than they currently do. 

The math is simple; eliminating tipped income is harmful to employees and customers.
Policy Brief
Tip Credit Policy Brief
January 20, 2023