NASHVILLE, Tenn. (WKRN) — In Tennessee, the weight of a tip is about more than just service, but survival, considering employers are only required to pay tipped workers $2.13 an hour under state law, provided their total earnings add up to at least the minimum wage of $7.25 an hour with tips.
Currently, Tennessee is one of 16 states that allow employers to pay tipped workers the federal tipped minimum wage of $2.13 an hour, provided their workers' total earnings add up to at least $7.25 an hour. If the employees' tips do not add up to the federal minimum wage of $7.25 an hour, employers are required by law to make up the difference.
This system, called the tip credit, allows employers to save money on employee salaries by using their tips as a credit. Longtime server, Doug Soileau told News 2 the system benefits him, too.
"I like it being at the $2.13 because it gives me the opportunity and incentive to want to go out there and work harder, do a better job," Soileau said. "I know, hey, I've got to make the money myself. It's all about me. If I don't do the job, I don't get paid."
Soileau worries if Tennessee gets rid of the tip credit system and requires employers to pay tipped workers the full minimum wage plus tips, his customers would tip less, among other consequences.
"They'll say, 'Oh, they're getting a big, high hourly wage,' and they'll stop tipping, or some employers will use it as an excuse to cut hours, or cut staff, or shut up shop, or not pay people," Soileau said.
There are currently seven states in the country — Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington — that do not use the tip credit system and require employers to pay tipped workers the state's full minimum wage. In 2022, Washington D.C. voters overwhelmingly chose to phase out the tip credit system by 2027 and require employers to pay tipped workers $17.50 an hour.
News 2 talked to groups in Washington D.C. about the positive and negative consequences of the change.
Andrew Kline, general counsel for the Restaurant Association of Metropolitan Washington said even though D.C. is only a year into phasing out the tip credit, he pointed out customers and staff are already paying the price through 15-20% service fees, and other problems.
"It's created a great deal of confusion as operators have experimented with service charges, increased prices, cut staffing, and other methods to make up the additional wages that must be paid," Kline said.
Kline added many are concerned D.C.'s independent restaurants will eliminate jobs, close down, and be replaced by chains.
According to the U.S. Bureau of Labor Statistics, full-service restaurants in D.C. have cut around 3,700 jobs since the district began scaling back the tip credit.
However, Benjy Cannon with UNITE HERE Local 25, a labor union that represents casino, hotel, and restaurant workers, told News 2 the two aren't connected.
"We've seen no evidence that raising the tip minimum wage has led to restaurant closures or even fewer restaurant workers, nor have we read that it's led to a decrease in tips," Cannon said.
Cannon and other opponents of the tip credit say it leads to wage theft and inequitable pay between staff serving people who are more likely to tip and those who are not. Eliminating it is the only way to ensure workers are paid fairly, he added.
"What [eliminating the tip credit] does is just make sure that every worker, no matter if they're at a fancy steakhouse or a chain, is going to at least be making the minimum wage," Cannon said.
It's unclear whether lawmakers in TN have any legislative plans to eliminate the tip credit, but multiple Democrats have sponsored bills in the past to raise the minimum wage. Legislation proposing a minimum wage increase could be presented during the upcoming legislative session, which begins Jan. 2025.