With the passage of Initiative 82 in D.C. last November, the capital will be phasing out tipped minimum wage by July 1, 2027. This means that employers in the District will be responsible for paying all employees the standard minimum wage.
Currently, employers with “tipped employees” in all three jurisdictions receive “tip credits.” Under this system, employers can use tips from customers to set-off the minimum wage which they are required to pay employees. For example, the current standard minimum wage in D.C. is $17 per hour. However, an employer may pay employees as little as $8 per hour, provided that tips received amount to at least $9 per hour. Notably, the tip credit accounts for tips averaged over the work week. This means that tips earned on a busier shift may “count” towards the tip credit for a slower shift.
Employers with tipped employees in the DMV should monitor the upcoming changes, as well as the differences between the jurisdictions.
Here’s what you need to know in DC:
In D.C., the tipped base wage, as of July 1, 2023, is $8 per hour. This rate will increase to $10 per hour on July 1, 2024. On July 1, 2025, it will raise to $12 per hour, and on July 1, 2024, it will become $14 per hour. Starting July 1, 2027, employers will be responsible for paying employees D.C.’s standard minimum wage, which is currently $17 per hour. This means that employers will need to pay the full standard minimum wage to all employees, regardless of tips. Starting in 2027, employers will be prohibited from putting any tips from customers towards an employee’s minimum wage.
Importantly, until D.C. completely phases out the tipped minimum wage, employers must continue to make up any difference if a tipped employee’s total pay does not equal the full minimum wage in D.C.
No changes in Virginia:
Virginia will continue to follow the state minimum cash wage payment under the Fair Labor Standards Act (“FLSA”) of $2.13 per hour for tipped employees. “Tipped employees” are defined in Virginia as employees who regularly receive over $30.00 per month in tips. However, when an employee’s hourly base wage plus tips do not meet the general Virginia minimum wage of $12.00 per hour, the employer must pay the difference.
Maryland laws:
Similarly, Maryland requires employers to pay tipped employees a base wage of $3.63 per hour. Maryland also defines “tipped employees” as those who regularly receive more than $30.00 in tips each month. Again, where an employee’s tips plus the base wage are less than Maryland’s general minimum wage, the employer must make up the difference. Currently, employers in Maryland with less than 15 employees must pay a general minimum wage of $12.80 per hour. Larger businesses with 15 or more employees must pay $13.25 per hour. However, on January 1, 2024, all employers will be required to pay a minimum wage of $15.00 per hour.
Jurisdictions regularly change their minimum wage rates and policies. It is crucial for employers to stay updated to remain compliant, especially for those operating in multiple jurisdictions. Employers should also keep in mind that these are state-wide minimums. Some localities may impose additional requirements beyond what the state mandates.
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