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A Common Misconception About Tipped Employees in Maryland

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In my 25 years of practice, I have represented both restaurant owners and employees in a variety of wage and hour matters. One issue that I have seen on a recurring basis concerns the payment of minimum wage to tipped employees, such as wait staff and bartenders. Many restaurant employers appear to believe that receipt of tips by employees somehow relieves them of the responsibility to pay minimum wage. This is simply not true.

In Maryland, tipped employees are indeed entitled to receive some form of minimum wage in addition to their tips. However, Maryland employers take can advantage of what is known as a “tip credit” to in effect reduce the amount of minimum hourly wage due a tipped employee. This is how it works — minimum wage in Maryland currently stands at $8.25 per hour (as set forth in the article below, minimum wage for Montgomery County employees is $9.55 per hour). If a tipped employee works 20 hours in any given week, he/she is entitled to at least $165.00 in compensation (20 hours x $8.25 per hour). However, if during that same period the employee earned $200.00 in tips, the employer would be entitled to a “tip credit” up to the required minimum hourly wage, less $3.63 (this is known as a “sub minimum” wage). So, in this example, the employer would only be required to compensate the tipped employee at the rate of $3.63 per hour.

Employers should be aware that if they fail to pay at least the required sub-minimum wage to tipped employees, they will be obligated to pay the full applicable minimum wage of $8.25 per hour and the employee will be entitled to retain all tips. This common mistake can cost employers thousands of dollars.