LC-10 · Labor
The tipped subminimum wage
Customers pay the wage
In ordinary words
Federal law lets employers pay tipped workers a cash wage of $2.13 an hour if tips bring them to the full minimum. The employer is supposed to make up any shortfall.
Why people call it a crime
A paycheck that says two dollars an hour looks illegal on its face. For servers it can be the lawful floor, with strangers’ tips doing the rest of the work.
A scene, not a hypothetical statute
The posted wage is $2.13. On a slow Tuesday the tips do not reach minimum. If the restaurant does not add the difference, the law is broken. If it does, the tiny cash wage was legal all along.
In legal terms
The Fair Labor Standards Act, 29 U.S.C. § 203(m), allows a tip credit against the federal minimum wage, currently requiring a direct cash wage of at least $2.13 where the employer takes the full credit. The employer must inform the worker and cover the gap if tips fall short. Several states have abolished the tip credit. Tip-pool rules were narrowed and then partly restored by regulation and statute.
Congress wrote the tip credit into the wage statute in 1966 and kept a cash floor that has not risen with the regular minimum.
29 U.S.C. § 203(m); 29 U.S.C. § 206.
Where it stops being legal
Keeping tips, failing to make up a shortfall, including managers in a tip pool, or taking a credit without notice violates the FLSA and can mean back wages and liquidated damages. Chronic underpayment is wage theft, which is illegal.