On August 31, 2023, a group of Ohio Senators introduced Senate Bill 146, a Bill that may bring significant changes to restaurants operating in Ohio. SB 146 would raise Ohio’s minimum wage to $12.00 per hour beginning January 1, 2024 and then by $1.00 each year for the following three years, putting the rate at $15.00 per hour in 2027.

Not only would SB 146 increase the state’s basic state minimum wage, it would also eliminate the tipped employee minimum wage and require all employees to be paid the basic state minimum wage. In other words, SB 146 would eliminate the “tip credit.”

What is a tip credit?

The Fair Labor Standards Act allows employers to pay a tipped employee, such as a restaurant server, an amount lower than the required minimum wage. To determine this lower amount, an employer can reduce the minimum wage by a portion of the employee’s tips.

For example, for 2023, Ohio’s minimum wage for non-tipped employees is $10.10 per hour. The minimum wage rate for tipped employees can be as low as $5.05 per hour. The $5.05 difference has to be made up in the form of an employee’s tips. This is how the tip credit allows employers to pay less in cash wages than the minimum wage.

Ohio SB 146 Elimination of the Tip Credit

If enacted, SB 146 would eliminate the reduced tipped employee minimum wage in the state of Ohio. Without a tip credit, employers will be required to pay all employees the basic state minimum wage rate. In the example above for 2023, an Ohio restaurant would be required to pay a server $10.10 per hour instead of $5.05 plus tips.

How do other states treat tip credits?

State laws differ in their allowance of a tip credit. Some states already do not allow employers to take a tip credit. Those states include California, Oregon and Washington. Other states allow a tip credit, but require employers to pay a higher wage to employees.

Recently, we have seen a flurry of proposed legislation regarding tips and the tip credit. Several states, in addition to Ohio, have also proposed the phase-out or elimination of the tip credit. Just recently, on October 6, 2023, the Chicago City Council voted to eliminate the tipped employee minimum wage for tipped employees working within Chicago by July 1, 2028.

Impacts of Tip Credit Elimination

There are many arguments for and against the elimination of the tip credit. Some proponents argue that overall pay is higher for service workers when the tip credit is eliminated, while opponents maintain that is not the case – that overall pay actually decreases. Opponents of eliminating the tip credit also contend that there may be more restaurant closures and job cuts, as the restaurant industry battles rising costs, including wages.

What’s next in Ohio?

In mid-September, SB 146 was referred to the Senate Workforce and Higher Education Committee, where a first hearing was held on September 27, 2023. The GBQ restaurant team will continue to monitor developments related to this important piece of legislation and what it means for Ohio restaurants and its employees.  Click here for more information from the Ohio Restaurant Association.



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Tags: Operations, SALT, Tax