To Tip, or not to Tip?

MONEY

Teachers, scroll down for a quick list of key resources in our Teachers’ Toolkit, including today’s poll.

Discussion Ideas

What is a tip?
- A tip, also called a gratuity, is a sum of money given to a service provider in addition to the basic price of a product or service.
  - Many food-service employees are tipped: waitstaff, delivery drivers, bartenders, baristas. Other typically tipped workers include hair stylists, cab drivers, and golf caddies.
  - In the U.S., the federal government says a worker must earn more than $30 a month in tips to qualify as a “tipped employee.” The federal minimum wage for tipped employees is $2.15. The federal minimum wage for non-tipped employees is $7.25.

Why are there different minimum wages for tipped and non-tipped employees?
- The two-tiered system assumes tipped workers will make up for the discrepancy with tips. For example, under federal law, an employer may take up to $5.12 per hour as credit toward a tipped employee’s wage. Under federal law, therefore, a tipped employee’s minimum wage ($2.15) and tip credit ($5.12) equal the federal minimum wage ($7.25).
  - Of course, states can always require employees to pay more than the federal minimum wage. (They can never require less, however. In states with no minimum wage law or with rates lower than the federal, the federal minimum wage rate applies.)

If the minimum wage for tipped employees is $2.13, why are some workers paid up to three times that amount?
- State’s rights.
  - Some states, such as California and Minnesota, do not have a two-tiered wage system for tipped and non-tipped employees. They require that employers pay all employees the federal or state minimum wage. All tips would therefore be in addition to at least $7.25.
  - Many states maintain a two-tiered wage system, but the state’s tipped minimum wage is higher than the federal minimum wage. The tipped minimum wage in South Dakota, for instance, is $4.25, while in Massachusetts, it’s $3.
  - Some states have multiple-tiered systems for tipped employees. In New York, for example, the tipped minimum wage for service employees at exclusive resorts is $4.90. For food service workers, it’s $5. For other service employees, it’s $5.65.

Why do some people support tipping? Read through the nice The Plate post for some help.
- Eliminating tipping would mean paying workers more (at least the minimum wage). Some restaurateurs argue that “raising salaries means raising prices, which scares away customers in a business that already has small profit margins . . . [R]aising base prices at, say, iHop, may make dining out of reach for many American families.”

Why do some people oppose tipping? Read through the The Plate post for some help.
- Many people support food-service workers earning a “living wage without being at the mercy of a diner’s whims at the end of the evening . . . Tipping is basically like having scores of unregulated bosses walk in off the street every day, deciding whether you get paid.”
- Some people say tipping is a relic of slavery—“people didn’t want to pay freed slaves, so instead gave them tips out of their self-aggrandizing gracious generosity.”
- Finally, minimum-wage debates are tightly associated with race. According to The Plate, 53% of our country’s tipped workers are minorities.

Does your state have a two-tiered wage system for tipped and non-tipped employees? What is the minimum wage for tipped employees? What is the regular minimum wage?
- Consult the U.S. Department of Labor’s Wage and Hour Division (WHD) for some help with tipped and regular wage laws.