Seven States Eliminate Tipped Minimum Wage as National Debate on Pay Models Intensifies

A long-standing debate over compensation models for service industry workers has gained renewed attention, highlighting the distinct pay structures for tipped employees versus those earning a full minimum wage. As noted by Billy Binion in a recent social media post, "Many servers (esp in big cities) make bank on the tipped minimum wage: a lower hourly rate supplemented with tips. Baristas make the full minimum wage. The pay models are different because the jobs are different—so tipping expectations should be different too." This statement underscores the core of a complex issue affecting millions of workers across the United States.

Under federal law, the minimum cash wage for tipped employees has remained at $2.13 per hour since 1991. Employers are required to ensure that an employee's combined earnings from this cash wage and tips meet the federal minimum wage of $7.25 per hour, a provision known as a "tip credit." If tips do not cover the difference, the employer is legally obligated to make up the shortfall. However, critics argue that this system often leads to wage theft and financial instability for workers, as enforcement can be challenging.

Advocates for eliminating the subminimum wage contend that it perpetuates gender and racial inequalities, with women making up nearly 70% of tipped workers and often experiencing lower median earnings and higher poverty rates compared to their male counterparts. Studies indicate that workers in states with a subminimum wage are more vulnerable to wage theft and sexual harassment. The Institute for Women's Policy Research reported in December 2024 that poverty levels for servers are substantially higher in states adhering to the $2.13 federal rate.

Conversely, opponents, including many restaurant associations, argue that eliminating the tipped minimum wage would force businesses to significantly increase menu prices, potentially leading to reduced consumer demand, job cuts, or even restaurant closures. They suggest that the current system allows for higher overall earnings for many servers, particularly in busy establishments, and that a shift could reduce total take-home pay if customers reduce their tipping. Concerns also exist about the potential for increased pay disparity between front-of-house and back-of-house staff if tips decrease.

In response to these debates, seven states—Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington—have already moved to a "one fair wage" model, requiring employers to pay all workers, including those who receive tips, the full state minimum wage before tips. Data from these states suggests that such policies lead to higher median earnings and lower poverty rates for tipped workers, without necessarily causing widespread business failures. The District of Columbia and several other states are also in various stages of phasing out or debating the elimination of their subminimum wages.

The ongoing discussion reflects a broader societal re-evaluation of labor practices and fair compensation. As states and cities continue to navigate the economic and social implications, the central question remains how best to ensure equitable and stable wages for all service industry employees while maintaining the viability of businesses.