Tips from Seyfarth is a blog series for employers, and their in-house lawyers and HR, payroll, and compensation professionals, in the food, beverage, and hospitality sector. We curate wage and hour compliance “tips” to keep this busy industry informed.

By: Ariel Cudkowicz and Michael Steinberg

Seyfarth Synopsis: The Connecticut General Assembly failed to pass a proposal to eliminate the tip credit for restaurant and hospitality workers before the end of the 2023 legislative session, but restaurant and hospitality employers in the Nutmeg State—and nationwide—should expect advocates to continue their efforts in years to come.

For today’s edition of Tips, we posit the following scenario. The owner of a small restaurant nestled in a bucolic New England town wakes up one morning to learn that her state legislature has just introduced a bill that (if enacted) would, overnight, more than double her labor costs for servers and bussers, likely forcing her to consider cutting those workers’ hours or eliminating some of their jobs altogether. Inconceivable, right?

Wrong. It almost happened this year in Connecticut, and similar proposals are gaining ground in other states, too.

In most states, businesses that employ workers who customarily and regularly receive tips—such as servers and bartenders in restaurants and places of lodgingmay pay those workers a minimum hourly wage below the minimum wage that applies to all other workers, provided that the employee receives enough in tips to make up the difference. If, as it turns out, the worker’s actual tips plus cash wages do not equal or exceed the state’s minimum wage, then the employer must make up the difference.  An employer that uses some or all of its employees’ tips toward its minimum wage and overtime obligations is said to take a “tip credit.” The tip credit has been a part of federal wage and hour law since 1966.  It is a long-established practice in these industries, one that recognizes that service employees’ earnings in cash and tips usually far exceed the minimum wage.

A proposal introduced at the beginning of the 2023 session of the Connecticut General Assembly, though, would have abolished the state’s tip credit, requiring restaurants and hotels to pay their tipped employees the current state minimum wage ($15.00 per hour) before tips. That’s more than double the current hourly cash wage for servers in Connecticut ($6.38). And, heading into the spring, it looked like the effort had momentum: the legislature’s Labor and Public Employees committee approved the bill, advancing it for consideration and a possible vote in the state’s House and Senate later in the year.

Last month, though, the legislature wrapped up the 2023 session for the beginning of the summer, and it appears that lawmakers left the abolition of the tip credit on the table, so to speak.

While this means that our small New England restaurateur can (for now) breathe a sigh of relief, we fully expect that advocates of the measure will push for it to be reintroduced next year. Moreover, similar proposals to eliminate the tip credit have been or are under consideration in other states, too, including Illinois, Maryland, and the District of Columbia—where a voter initiative phasing out the tip credit took effect late last year.  Some states, such as California, Minnesota, Washington, and Oregon, already require restaurants and hotels to pay tipped employees the full state minimum wage before tips.

Simply put, the laws in this area are more varied than it might seem at first, and the landscape is quickly changing. Luckily, Seyfarth’s Wage and Hour Practice Group is keeping tabs on all of the latest developments. If you have questions about how tip credit requirements may affect your business, feel free to reach out to the authors, your favorite Seyfarth attorney, or Seyfarth’s Wage and Hour Practice Group.