The employment laws and minimum wage laws in the U.S. are not always clear, especially when considering pay for tipped employees. While tipping is not common in many other countries, thousands of workers in the U.S. make most of their income through tips.
Maryland employees at bars, restaurants, hotels, airports, and other service providers often expect to be paid a pretty small hourly wage supplemented heavily by tips (also known as gratuities). Many service-industry workers base their entire compensation on tips and rely on them to cover their living expenses.
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.
If an employee receives more than $30 per month in tips, they are considered a tipped employee by federal standards. These employees often include workers such as bartenders, servers in restaurants, certain hotel workers, pizza delivery drivers, and others. The Maryland laws surrounding the definition of a tipped worker follow the federal guidelines.
Maryland Tipped Employees and Tipped Minimum Wage
In order to comply with minimum wage law, employers must ensure that when including tips, their employees are being paid at least the state minimum wage rate set for Maryland tipped workers, also known as the Tipped Employee Minimum Wage in Maryland. If those employees are not making that minimum pay rate, it is then the employer’s responsibility to make up the difference.
There are several different factors of employment law that impact how Maryland employers handle tipped employees. Understanding the minimum wage in Maryland, the federal laws controlling wages, and how pay and wages work for tipped employees is important, especially if you are operating or thinking about starting a service-related business with tipped employees.
The Maryland minimum wage is currently $12.50 per hour for non-tipped employees. The tipped minimum wage is $3.63 per hour for tipped employees in Maryland. Maryland law requires the Maryland Department of Labor to calculate a minimum wage increase 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 Maryland. The minimum wage for both tipped and non-tipped employees rises based on the CPI. The consumer price index is different in different locations around the state, however, the minimum wage will remain the same. For example, the minimum wage in Baltimore MD is the same as the minimum wage in Columbia MD.
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 employers make tipped employees aware of the cash wage paid (currently, the national direct hourly salary is $2.13 per hour), let them know about the tip credit, and explain any tip pooling systems at the workplace. Because Maryland’s minimum wage rate is higher than the federal minimum wage rate, the state laws supersede the federal regulations.
Tipped Employees, Tip Credits, and other Considerations for Maryland Employers
Since the rules for tipped employees are different than non-tipped employees, there are other ways that employers can calculate the minimum amount earned by a tipped employee. One of these ways is through tip credits.
The Maryland tip credit is currently $8.87 per hour – this means that employers can claim an $8.87 hourly credit against the tipped employee’s minimum wage. This credit effectively turns the $12.50 regular minimum wage into a $3.63 per hour minimum wage that employers must pay to tipped employees no matter how much they earn.
Let’s suppose tipped employees earn less than $8.87 per hour as their tipped wage. In that case, the employer must pay the difference between what they made and $3.63 per hour. This pay is called the minimum cash wage. It ensures that tipped employees earn a wage, even if a slow workweek or other downturns occurs where they did not receive sufficient tips.
This minimum wage rate ensures that servers and others in tipped roles in Maryland that do not make enough with tips can earn a weekly wage when working full-time of exactly $500. The table below showcases the tipped minimum wage rates in Maryland over the past few years.
| State | Tipped Wage | Tip Credit |
|---|---|---|
| Maryland tipped minimum wage 2022 | $3.63 | $8.87 |
| Maryland tipped minimum wage 2021 | $3.63 | $8.12 |
| Maryland tipped minimum wage 2020 | $3.63 | $7.37 |
| Maryland tipped minimum wage 2019 | $3.63 | $6.47 |
What Does This Mean for my Business?
If you are currently operating or planning to start a new business in Maryland or considering Maryland as a location for buying a business, you should take this information about tipped employees and the state 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 employees can help you make an informed decision.
In Maryland, much the same as most other U.S. states, tipped jobs are a mainstay of the economy and accessible for those seeking employment given the tourism-heavy nature of the Maryland economy. Today there are over 11,300 eating and drinking establishments in Maryland, and there are almost 260,000 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 likely need to have a pay rate for tipped employees higher than the federal tipped employee rate.
To learn more about tipped employees, you can check out the Department of Labor’s Website on the minimum wage for tipped employees.
