Today we shall be addressing why Americans tip their servers, and we shall be reviewing it from the tax point of view and also clarify the misconceptions that follow tipping servers. To start with, the federal minimum wage for a server or an employee considered a tipped employee is $2.13/hr., which is relatively low. Even lower than the minimum wage in every state and the federal minimum wage of $7.25/hr.
More so, each state individually classifies the minimum wage of an employee considered a tipped employee. I’ll be using California as an example. In California, if you have over 26 employees, you must pay a minimum wage to a tipped employee of $15/hr. With this, that employee can earn up to $15/hr., plus tips they receive for excellent service.
However, it doesn’t apply to every state —Texas, for instance. The minimum wage for a tipped employee in the state of Texas is $2.13/hr. In addition, in Texas and many other states, if that employee doesn’t make up difference between the tipped employee minimum wage and state minimum wage, in this case, that’ll be $7.25/hr, then the employer is obligated to make up the difference.
As we said earlier, it differs with each state. In some states, the minimum wage for a tipped employee ranges between $2.13 to $15/hr. In other states, it is the minimum they receive when you include a tipped employee until the employer meets the minimum state wages.
However, most people fail to consider the high expenses of a restaurant. Going back to California, an average restaurant will have between four and fifteen employees working at any moment. In this state, if you have over 26 employees, the minimum wage to be paid to each of them is $15/hr. The cost of ingredients, drinks, vegetables, and the like must also be considered. Utilities, too, come at a cost: your rent, water, electricity, internet, etc., which the employer must cover.
To this end, it is somewhat difficult for most restaurant owners to pay employees the minimum wage and keep a reasonable price of food. However, it is achievable if you sell a high quantity of food or high-quality food.
Tipping comes in handy here as it helps the employer cover the minimum wage for the employees and indirectly keeps the prices of food lower for other customers. This is the biggest benefit of tipping. In addition, it also helps servers. The majority of servers are either college students, younger individuals or individuals that treat it as a career It is sometimes difficult to make the federal minimum wage of $7.25 depending on where they are in the country.
This is a significant factor contributing to the restaurant price difference in California against other states as their expenses are higher. Rent is also a major one that is expensive. We have seen restaurants in the state fold due to high rent and the inability to pay employees and keep up with inventory. Tipping is more than appreciating the server for good services. It also helps keep the server employed.