TN tipping laws: How tips help workers close the gap

NASHVILLE, Tenn. (WKRN) — Tennessee employers are only required to pay their tipped workers $2.13 an hour as long as their salary adds up to the federal minimum wage of $7.25 an hour. However, some lawmakers believe it’s time to tip the scales.

Despite the name, The Lost Paddy, the restaurant and pub’s owner, Micheal O’Leary moved to Tennessee on purpose, leaving his restaurant in California behind due to legislation to raise the minimum wage.

“At the time, 2016, California was going from $10 an hour for tipped employees up to $15 an hour. I left the state. I couldn’t see a way of getting to that,” O’Leary said.

O’Leary told News 2 lawmakers in California didn’t phase in the minimum wage increase slowly enough, and many small business owners had to close for good or leave the state.

As a result, O’Leary made his way to Tennessee where he pays his tipped employees a base salary of $5 an hour, which is more than the required tipped minimum wage of $2.13 an hour. He said he uses their tips as a credit toward his obligation to pay the minimum wage of $7.25 an hour. This is called the tip credit.

“The tip credit is a very good way to say look, we’ll balance it. You get a less of a pay per hour, but your tips will supplement that,” O’Leary said.

Despite that, O’Leary believes Tennessee’s tipped minimum wage of $2.13 an hour is too low, which is why he pays $5 an hour.

Memphis state Representative G.A. Hardaway (D-Memphis) agrees.

“$2.13, it amounts to slave labor,” Hardaway said.

Hardaway has sponsored multiple bills over the years to raise the minimum wage to what he calls a “livable wage.” In 2017, he sponsored a bill that would have raised minimum wage to $15 an hour and $6.15 an hour for tipped employees.

However, his bill never made it out of committee, partly due to the Republican supermajority’s concerns over how it would impact businesses’ bottom lines.

“When they bring the anecdotal argument that you’re going to put small businesses out of business, the harsh reality is small businesses that cannot pay fair labor are not supposed to be in business in the first place,” Hardaway said.

While O’Leary supports raising the minimum wage, he worries about the potential, negative consequences on “mom and pops” if it is done too quickly.

“Forcing and taking away the tip credit, [making] other bars and restaurants jump from $2.13 an hour to the new minimum wage of $10 or whatever they’re going to raise it to is going to put all mom and pops out of business first,” O’Leary said. “Mom and pops are the backbone of America. This is me pleading with whoever is coming up with the legislation. Don’t tear us down. It’s already happening in California. Small mom and pops are going and big businesses are coming in.”

With the Republican supermajority in the state, the minimum wage likely won’t be raised anytime soon.

However, both parties can agree on the push for no taxes on tips. Former President Donald Trump first came up with the idea before Vice President Kamala Harris promised to adopt a similar policy if elected.

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O’Leary told News 2 no federal taxes on tips would benefit his employees more than changing the state’s tipping structure laws. He believes the government should use it as an incentive for tipped workers to get health insurance, because many aren’t offered it through their employers.

“If you’re making $1,000 a week, you’re probably paying $160 per pay period, that’s $320 a month,” O’Leary said. “That would be hugely beneficial to anyone to go towards health insurance, and you make it a caveat. We’ll give you the benefit of no federal taxes if you can show us that you have health insurance.”

O’Leary said should the government adopt no taxes on tips, tipped workers should still pay into social security.

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