Tipped Out: Would Ending Involvement in the FLSA Tip Credit System Improve Georgia’s Restaurant Wages?

The Tip Credit provision of the Fair Labor Standards Act (FLSA) allows a restaurant employer to pay a tipped employee just $2.13 per hour if the employee earns enough in tips to raise their hourly rate to the minimum wage. Enacted in 1966, the provision intends for restaurants, an industry group known for high costs and low profit margins, to employ tipped serving staff at lower cost while ensuring the tipped employees can still earn a competitive wage. The tipping system is not without issues, however. Many of the employers’ duties under the FLSA are difficult to account for, leading to widespread Wage and Hour Violations. Tipped employees face higher rates of workplace discrimination, and in many states including Georgia, these employees earn average wages far below country-wide median earnings. This Note explores the origins of the Tip Credit provision in the wider context of the FLSA and its application in Georgia. It proposes that Georgia join several other states and eliminate the provision by enactment of state legislation. This would encourage a higher investment from restaurants in their workers and lower rates of poverty among low wage restaurant workers. It would also eliminate differences in pay structures between tipped serving staff and hourly cooking staff, allowing both sides an easier path towards unionization and collective bargaining. Although eliminating the tip credit poses the risk of raising restaurant labor costs, the move could lead to more equitable wages for hard working tipped workers.