Paying substantial 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 without a doubt the case in Kentucky, particularly in the hospitality industry.
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 that are paid by customers.
The majority of service-industry workers who are paid the Kentucky tipped minimum wage will base most of their take-home pay on tips and will rely on them to cover their cost of living and lifestyle.
What makes a Kentucky 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 Kentucky, 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, valet car parking attendants, and any other service related industry. The Kentucky laws that surround the definition of a tipped employee follow these federal guidelines.
Tipped Employees & the Tipped Minimum Wage in Kentucky
To abide by the Kentucky 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 Kentucky 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 at least the full minimum wage rate for Kentucky.
There are several different employment law factors that have a direct impact how Kentucky employers handle their tipped employees. Knowledge of the minimum wage in Kentucky, 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 Kentucky is $7.25 per hour (federal minimum wage) for non-tipped employees. The Kentucky tipped minimum wage is $2.13 per hour. The state 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 Kentucky 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 wage rate is only $2.13 per hour.
Tipped Credits and the Minimum Cash Wage in Kentucky
Since the rules for tipped employees are different than non-tipped employees, there are other ways that Kentucky 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 Kentucky? The Kentucky 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 Kentucky 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 servers and others in tipped roles in Kentucky 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).
Alternatively, some tipped employees in Kentucky will work more than 40 hours per week, especially if they are covering shifts for other employees, and may qualify for overtime pay.
How Could This Affect You as a Business Owner?
If you are planning to buy or start a new business in Kentucky due to the opportunities the state has to offer, or just simply considering moving to and finding a job in Kentucky, you will need to be aware of the details surrounding the tipped minimum wage in the Bluegrass 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 Kentucky that has tipped employees.
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.
If you have a claim related to employment, you can find out more information on the Kentucky Labor Cabinet’s website.