New Bill Proposes Changes to Maryland Tip Credit

Restaurant owners and their employees are up in arms over legislation recently introduced in Maryland that proposes a change to the long-standing rule allowing employers to claim a tip credit on an employee who receives less than minimum wage (“tipped employee”). Tip credits allow an employer to credit a portion of an employee’s tips toward the employer’s obligation to pay minimum wage.  Tipped employees receive tips from the establishment’s patron, which compensates them for their lower hourly wage, and the employer is relieved of the burden of paying full minimum wage. Tip credits have been the standard in restaurants for the last 50 years and have often enabled tipped employees to make well more than minimum wage.

Senate Bill 803 (the “Bill) introduced in February 2023, calls for phasing out an employer’s ability to claim a tip credit on a tipped employee over the next three years and dramatically increasing the base pay of tipped employees. Under the Bill, beginning July 1, 2027, employers will no longer be allowed to claim a tip credit, and must pay tipped employees the state minimum wage, which will be $15.50 at the time the tip credit is eliminated under the Bill. The Bill is intended to support employers who are raising wages to attract restaurant workers, and arguably would benefit a large portion of tipped employees by providing higher wages and more security in their paycheck.  However, this could result in some businesses deciding to collect tips, instead of allowing employees to keep the tips they earn, and utilizing those tips to pay minimum wage. Additionally, patrons may tip less knowing that the tipped employee is receiving minimum wage, and some tipped employees may ultimately earn less wages.

The Bill also adds an entirely new section that mandates that the Commissioner establishes a program to aid restaurant employers in maintaining profitability without claiming a tip credit. This new section does not provide a timeline to when the Commissioner must have the program implemented and gives authority to the Commissioner to establish a business profitability program.

Shumaker Williams is monitoring this legislation for updates. In the meantime, employers may continue to claim the credit for tipped employees under current law.

The information contained herein is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this blog should be construed as legal advice from Shumaker Williams P.C. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. This blog is current as of the date of original publication.