In the United States, employment laws, and more specifically, minimum wage laws are not always clear to follow, especially when you are considering the minimum wage for tipped employees. While tipping is perhaps not common practice in other countries, thousands of U.S. workers make the majority of their income through earning tips.
Employees in the U.S. that are employed by bars, restaurants, hotels, airports, and other service providers often expect to be paid a rather small hourly wage, which is then supplemented heavily by tips, which is also known as gratuities or tip credit. However, this is not the case in Alaska due to there not being any ‘tip credit’ paid to employees within the state, meaning that, despite tips, employees will be paid the true Alaska minimum hourly wage.
What is a Tipped Employee?
What exactly is a tipped employee? A tipped employee is one that earns their wages through tips rather than a fixed salary or higher hourly rate. Federal law establishes the rules of what is considered a tipped employee vs. a non-tipped employee.
The tipped minimum wage in Alaska works differently than most other states and there is only a handful of other states that do not use tip credit either. The majority of states define a tipped employee as an employee that receives more than $30 per month in tips, or in some cases more than $20 per month in tips. Whereas the tipped minimum wage in Alaska is simply the state minimum wage of $10.34 per hour.
Alaska Tipped Minimum Wage and Tipped Employees
Complying with the Alaska minimum wage law means employers must ensure that their employees are being paid an hourly rate of the state minimum wage regardless of tips. Typically, employers would pay their employees a small hourly rate and then supplement that with a tip credit that equates to the state minimum wage, but not in Alaska.
Despite the tipped minimum wage system being different in Alaska to the majority of other states, the end result is still the same – tipped employees will be paid a total of the state minimum wage ($10.34 per hour) regardless of not receiving tip credit or a tipped minimum wage rate. This is why having a general understanding of the minimum wage in Alaska is so important.
The Alaska minimum wage is currently $10.34 per hour for non-tipped and tipped employees. Due to there being no tipped minimum wage and no tip credit in Alaska, despite how much an employee makes in tips, the minimum hourly rate they must be paid is $10.34 per hour.
Alaska law requires the Department of Labor and Workforce Development in Alaska to calculate minimum wage increases each year. The annual calculation is based on the percentage increase in the Federal Consumer Price Index (CPI) for the previous 12-month period within the state.
The CPI is calculated based on what consumers pay for goods – a 1% increase in the regional CPI translates to a 1% increase in the applicable minimum wage in Alaska. The minimum wage for both tipped and non-tipped employees rises based on the CPI.
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.
Due to the unique set of rules regarding the tipped minimum wage in Alaska, there is no such thing as tip credits in the state. So, the tipped minimum wage in Alaska and the statewide minimum wage in Alaska is the same – $10.34 per hour.
This minimum wage rate ensures that servers, hospitality, and others in tipped roles in Alaska can still earn a regular and consistent weekly wage when working full-time of $413.60 (40 hours x $10.34 per hour).
What Does This Mean for my Business?
If you currently operate, or are planning on starting a new business in Alaska or are considering Alaska as your new home and are seeking a service and tip driven job, or even a non-tipped job that you might be paid the minimum wage, you should certainly take this information about the Alaska tipped minimum wage into account.
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 and regular employees can help you make an informed decision.
If you have a question or concern over the tipped minimum wage in Alaska you can contact the Labor Standards and Safety department for more information. They also have an FAQs document that you will find useful.