For those who work in the service industry, the importance of tips cannot be overstated. Many service employees work primarily for tips, meaning that their employer only provides them with a minimal level of base hourly compensation. Thus, for many service employees, their lives literally depend on the amount of tips they bring in.
On its face, the concept of tipping seems to only benefit the employee receiving the tip. However, over the years, employers have also found ways to benefit from society’s expectation that an employee will be tipped for the services they provide. For example, under Texas law, an employer is able to pay a tip-eligible employee less than those employees who do not receive tips by taking a “tip credit.”
A tip credit is an adjustment that employers can make to a tipped employee’s wage, assuming that the employee will make up the difference in tips. For example, the minimum wage in Texas is $7.25/hour. However, an employer only needs to pay a tip-eligible employee $2.13/hour. The remaining $5.12/hour is considered a tip credit. If, however, the employee does not bring in at least an additional $5.12/hour, the employer will be required to pay the difference. Thus, tipping allows for an employer to pay its tipped employees less than they pay non-tipped employees.