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, casinos, 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 Minnesota due to there not being any ‘tip credit’ paid to employees within the state. This means that despite receiving tips, employees will still be paid the true Minnesota minimum hourly wage.
What Exactly is a Tipped Employee?
A tipped employee is generally someone that 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 Minnesota 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 Minnesota is simply the state minimum wage, which is $8.42 per hour for employees working for businesses with annual gross revenues of less than $500,000 and $10.33 per hour for employees working for businesses that make $500,000 or more in gross revenues.
Tipped Minimum Wage in Minnesota and Tipped Employees
Complying with the Minnesota minimum wage law means employers must ensure that their employees are being paid an hourly rate equal to at least 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 Minnesota.
Despite the tipped minimum wage system being different in Minnesota to the majority of other states, the end result is still somewhat the same. Tipped employees will be paid a total of the state minimum wage, $8.42 per hour for small businesses (less than $500,000 annual revenue) or $10.33 per hour for large businesses ($500,000 or more annual revenue) regardless of not receiving tip credit or a tipped minimum wage rate. This is why having a general understanding of the minimum wage in Minnesota is so important.
The Minnesota minimum wage is currently $8.42 or $10.33 per hour for non-tipped and tipped employees. Due to there being no tipped minimum wage and no tip credit in Minnesota, despite how much an employee makes in tips, the minimum hourly rate they must be paid is $8.42 or $10.33 per hour depending on the size of the employer.
Minnesota law requires the Department of Labor and Industry in Minnesota 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 1.5% increase in the regional CPI translates to a 1.5% increase in the applicable minimum wage in Minnesota. 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 Minnesota, there is no such thing as tip credits in the state. So, the tipped minimum wage in Minnesota and the statewide minimum wage in Minnesota is the same – $8.42 per hour for small businesses (less than $500,000 annual revenue) and $10.33 per hour for large businesses ($500,000 or more annual revenue).
This minimum wage rate ensures that Minnesota servers, hospitality workers, hotel workers, casino workers, and others in tipped roles in Minnesota can still earn a regular and consistent weekly wage when working full-time of at least $336.80 (40 hours x $8.42 per hour) or $413.20 (40 x $10.33) depending on the size of your employer.
What Does This Mean for my Business?
If you currently operate, or are planning on starting a new business in Minnesota or are considering the Land of 10,000 Lakes 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 Minnesota 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 and proposed employees, 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 Minnesota you can contact the Department of Labor and Industry via telephone: 651-284-5005 or 800-342-5354.