Paying tips is not common in most other countries around the world. However, it is very common practice in the United States, with a huge number of workers making the majority of their income through tips. This is undoubtedly the story in Alabama.
Hospitality workers, including restaurant, bar, cafe, hotel, cruise, bellhop, and other service provider employees usually are aware that they will be paid a small hourly wage, which is heavily supplemented through the addition of tips paid by customers.
The majority of service-industry workers who are paid the Alabama tipped minimum wage will base most of their take-home pay on tips and will rely on them to cover the cost of living and other potential expenses.
So, what makes a Tipped Employee?
When you consider what makes a tipped employee, a tipped employee is somebody who earns their wages through tips rather than a fixed salary or higher hourly rate. Federal law has established the rules behind what is considered to be a tipped employee vs. a non-tipped employee.
So, in Alabama, if an employee receives $30 or more per month in tips, they are considered to be a tipped employee by federal and state standards. These employees often include workers such as bartenders, restaurant servers, hotel workers, and any other service related industry. The Alabama laws that surround the definition of a tipped employee follow these guidelines.
Tipped Employees & the Tipped Minimum Wage in Alabama
To abide by the Alabama minimum wage laws, employers must ensure that their employees are being paid at the very least the state minimum wage rate when you include tips, which is also known as the Alabama tipped minimum wage for employees.
If these employees do not make the minimum wage pay rate in tips, then it is the responsibility of the employer to make up the difference, ensuring that the employee is being paid the full minimum wage rate for Alabama.
There are several different employment law factors that have a direct impact how Alabama employers handle their tipped employees. Knowledge of the minimum wage in Alabama, the federal laws controlling wages, and how pay and wages work for tipped employees is pivotal if you are already running or considering starting a service-related business with tipped employees.
Currently, the minimum wage in Alabama is $7.25 per hour (federal minimum wage) for non-tipped employees. The Alabama tipped minimum wage is $2.13 per hour. Alabama currently follows the federal minimum wage laws meaning that there is no specific and higher minimum wage set by the state itself, employees and employers must follow federal guidelines related to the minimum wage.
Fair Labor Standards Act (FLSA) and Tipped Employees
The Federal Fair Labor Standards Act, also known as the FLSA, is a federal law from the U.S. Department of Labor. This law establishes a national minimum wage, defines classifications for employees, and covers other essential standards and requirements for employers.
Federal law requires that Alabama employers make tipped employees aware of the cash wage paid. They must also let them know about the tip credit, and explain any tip pooling systems at the workplace. Currently, the national direct hourly salary is only $2.13 per hour.
Tipped Employees, Tip Credits, and other Considerations
Since the rules for tipped employees are different than non-tipped employees, there are other ways that Alabama employers can calculate the minimum amount earned by a tipped employee. One of these ways, and perhaps the most significant method is through tip credits.
So, what is the minimum wage for a Waitress in Alabama? The Alabama tip credit is currently $5.12 per hour – this means that employers can claim a $5.12 hourly credit against the tipped employee’s minimum wage. This credit effectively turns the $7.25 minimum wage into a $2.13 per hour minimum wage that employers must pay to tipped employees no matter how much they earn.
Let’s assume a tipped employee (bartender, server, etc.) in Alabama earns, on average, less than $5.12 per hour during the working week as the tipped portion of their earnings (an accumulation of their tips). In that case, the employer must pay the difference between the minimum cash wage ($2.13 per hour) what they made in tips per hour in a working week, and the total of $7.25 per hour. This is tipped credit against the minimum wage and it can be up to 71% or $5.12.
A minimum cash wage ensures that tipped employees earn a reasonably consistent wage even if a slow workweek or other downturn occurs where they do not receive sufficient tips. This regular minimum wage rate ensures that Alabama servers and others in tipped roles in Alabama that do not make enough with tips can still earn a minimum weekly wage when working full-time of $290 ($7.25 x40 hours per week).
What Does This Mean for My Business?
If you are planning to buy or start a new business in Alabama due to the opportunities the state has to offer, or just simply considering moving to and finding a job in Alabama, you will need to be aware of the details surrounding the tipped minimum wage in the Yellowhammer State.
While you may want to speak with an employment attorney or accounting firm for legal and tax advice about your business, understanding the minimum wage laws for tipped employees can, and will certainly aid you in making an informed decision whether or not to start a business in Alabama that has tipped employees.
In Alabama tipped jobs make up a large portion of the economy and are accessible for those seeking employment given the tight-knit communities and the fact the state is referred to by many as having the best southern hospitality. Today there are just over 8,500 eating and drinking establishments in Alabama, and there are almost 200,000 restaurant and food service jobs in the state!
Most U.S. states and territories require that tipped employees make either the full state minimum wage or make a minimum cash wage higher than the FLSA’s requirements. Regardless of where you locate your business in the U.S., you will most likely need to have a pay rate for tipped employees higher than the federal tipped employee rate.