The Rising Minimum Wages and Tip Credits for 2017: An Overview


 

Authors: Benjamin A. Anchill (Detroit Metro), Margaret Carroll Alli (Detroit Metro)

Published Date: December 21, 2016

Effective January 1, 2017, 29 states plus the District of Columbia will have minimum wage rates that are above the federal minimum wage rate of $7.25 per hour. The District of Columbia will continue to have, as it did last year, one of the highest minimum wage rates in the country at $11.50 per hour until July 1, 2017, and $12.50 per hour after that date. With respect to state minimum wages, Massachusetts and Washington will have the highest minimum wages at $11.00 per hour effective January 1, 2017, with California close behind at $10.50 per hour (for employers with 26 or more employees), effective January 1, 2017, and Connecticut following at $10.10 per hour, effective January 1, 2017.

The states with the lowest minimum wages continue to be Georgia and Wyoming, both of which have rates of $5.15 per hour, along with Oklahoma, which allows employers that have fewer than 10 full-time employees and $100,000 or less in gross annual sales to pay $2.00 per hour to employees. Five states—Alabama, Louisiana, Mississippi, South Carolina, and Tennessee—have not enacted minimum wage laws. Of the 45 states plus the District of Columbia that have enacted minimum wage laws, 22 (or slightly less than one-half of them) will increase their minimum wage rates from 2016 to 2017 (up from 17 states—or just over one-third—that increased their minimum wage rates from 2015 to 2016).

The 2017 Minimum Wage

The chart below lists the minimum wage rates that will be in effect for 2017 in all 50 states and the District of Columbia and also reflects changes in state laws from 2016 to 2017. Importantly, all employers covered under the Fair Labor Standards Act (FLSA) will still be required to meet the applicable FLSA minimum hourly rate, which remains at $7.25 per hour, even if a particular state’s law allows for a lower minimum wage rate. Thus, states with minimum wage rates that are lower than $7.25 per hour must pay employees at least $7.25 per hour.

The 2017 Maximum Tip Credit

The chart also breaks down the maximum tip credit that employers can count against the hourly rates of tipped employees. The tip credit is the portion of the cash minimum wage that employers are not required to pay to employees who receive tips. The minimum wage less the applicable tip credit is the lowest wage per hour that an employer must pay its tipped employees.

All FLSA-covered employers may apply a tip credit that, generally, should be no greater than the FLSA’s maximum tip credit, which is currently set at $5.12 per hour. Employers in states with maximum tip credits that are higher than the federal maximum tip credit may be able to apply the higher tip credit only if the difference between the state minimum wage and the tip credit is at least $2.13. A more conservative approach, however, would be to adopt the lower federal maximum tip credit since it is more advantageous to employees. Employers in states that have enacted a tip credit that is lower than the federal maximum tip credit of $5.12 per hour (including states that have prohibited the payment of tip credits in their entirety) may continue to follow the more employee-friendly state law.

JURISDICTION 2017 MINIMUM WAGE 2017 MAXIMUM TIP CREDIT ALLOWED CHANGE FROM 2016
Federal $7.25 $5.12 No change
Alabama No specific minimum wage rate under state law; the $7.25 federal minimum wage rate applies No specific tip credit minimum under state law; the federal $5.12 maximum tip credit applies No change
Alaska $9.80, effective January 1, 2017 $0.00; no tip credit allowed under state law Increase
Arizona $10.00, effective January 1, 2017 $3.00 Increase
Arkansas $8.50, effective January 1, 2017 Employers should apply the maximum $5.12 federal tip credit, even though the state maximum tip credit is higher at $5.87. Increase
California $10.00 for employers with fewer than 26 employees, effective January 1, 2017 $0.00; no tip credit allowed under state law Increase for employees who work for employers with 26 or more employees
$10.50 for employers with 26 or more employees, effective January 1, 2017
Colorado $9.30, effective January 1, 2017 $3.02 Increase
Connecticut $10.10, effective January  1, 2017 $3.72 (waitpersons); $1.87 (bartenders), effective January 1, 2017 Increase
Delaware $8.25 Employers should apply the maximum $5.12 federal tip credit, even though the state maximum tip credit is higher at $6.02. No change
District of Columbia $11.50 until July 1, 2017, then $12.50 Employers should apply the maximum $5.12 federal tip credit, even though the state-imposed maximum tip credit is higher at $8.73 until July 1, 2017, and will then be $9.17. Increase
Florida $8.10, effective January 1, 2017 $3.02 Increase
Georgia The $7.25 federal minimum wage rate applies because the state minimum wage rate is lower at $5.15 for employers with six or more employees and annual sales of more than $40,000. Tipped employees are not subject to the state minimum wage rate. No change
Hawaii $9.25, effective January 1, 2017 $0.75 Increase
Idaho $7.25 $3.90 No change
Illinois $8.25 $3.30 No change
Indiana $7.25 $5.12 No change
Iowa $7.25 $2.90 No change
Kansas $7.25 $5.12 No change
Kentucky $7.25 $5.12 No change
Louisiana No specific minimum wage rate under state law; the $7.25 federal minimum wage rate applies No specific tip credit minimum under state law; the federal $5.12 maximum tip credit applies No change
Maine $9.00, effective January 1, 2017 $4.00, effective January 1, 2017 Increase
Maryland $8.75 until July 1, 2017, then $9.25 $5.12 until July 1, 2017, then $5.62, at which time employers should apply the maximum $5.12 federal tip credit, even though the state-imposed maximum tip credit effective after July 1, 2017 is higher Increase
Massachusetts $11.00, effective January 1, 2017 Employers should apply the maximum $5.12 federal tip credit, even though the state-imposed maximum tip credit is higher at $7.75, effective January 1, 2017. Increase
Michigan $8.90, effective January 1, 2017 Employers should apply the maximum $5.12 federal tip credit, even though the state-imposed maximum tip credit is higher at $5.52, effective January 1, 2017. Increase
Minnesota

 

$9.50 for employers with gross sales of $500,000 or more $0.00; no tip credit allowed under state law No change

 

$7.75 for employers with gross sales less than $500,000
Mississippi No specific minimum wage rate under state law; the $7.25 federal minimum wage rate applies No specific tip credit minimum under state law; the federal $5.12 maximum tip credit applies No change
Missouri $7.70, effective January 1, 2017 $3.85 Increase
Montana $8.15, if the employer’s annual sales are more than $110,000, effective January 1, 2017; otherwise the $7.25 federal minimum wage rate applies because the state minimum wage rate for other businesses is lower at $4.00 $0.00; no tip credit  allowed under state law Increase
Nebraska $9.00 Employers should apply the maximum $5.12 federal tip credit, even though the state-imposed maximum tip credit is higher at $6.87. No change
Nevada

 

$7.25 if the employee receives health benefits provided by the employer $0.00; no tip credit allowed under state law

 

No change

 

$8.25 if the employee does not receive health benefits provided by the employer
New Hampshire $7.25 $3.99 No change
New Jersey $8.44, effective January 1, 2017 Total wages and tips must equal at least the minimum wage. Increase
New Mexico $7.50 Employers should apply the maximum $5.12 federal tip credit, even though the state-imposed maximum tip credit is higher at $5.37. No change
New York New York City’s (NYC)  Large Employers (11 or more employees): $11.00 ($12.00 for fast food workers), effective December 31, 2016 NYC’s Large Employers: $1.85 for service employees, $3.50 for food service workers, and $0.00 for fast food workers, effective December 31, 2016 Increase
NYC’s Small Employers (10 or fewer employees): $10.50 ($12.00 for fast food workers), effective December 31, 2016 NYC’s Small Employers: $1.75 for service employees, $3.00 for food service workers, and $0.00 for fast food workers, effective December 31, 2016
Long Island and Westchester: $10.00 ($10.75 for fast food workers), effective December 31, 2016 Long Island and Westchester: $1.65 for service workers, $2.50 for food service workers, and $0.00 for fast food workers, effective December 31, 2016
Remainder of New York: $9.70 ($10.75 for fast food workers), effective December 31, 2016 Remainder of New York: $1.60 for service employees, $2.20 for food service workers, $0.00 for fast food workers, effective December 31, 2016
North Carolina $7.25 $5.12 No change
North Dakota $7.25 $2.39 No change
Ohio $8.15, if the employer’s annual gross receipts are more than $297,000, effective January 1, 2017; otherwise $7.25 $4.07 Increase
Oklahoma $7.25; the federal minimum wage rate applies because the state minimum wage is lower at $2.00 for employers with fewer than 10 full-time employees with gross annual sales of $100,000 or less $3.625 ($1.00 if the employer has fewer than 10 full-time employees with gross annual sales of $100,000 or less) No change
Oregon $9.75 until June 30, 2017, then $10.25 $0.00; no tip credit allowed under state law Increase
Pennsylvania $7.25 $4.42 No change
Rhode Island $9.60 Employers should apply the maximum $5.12 federal tip credit, even though the state-imposed maximum tip credit is higher at $5.71, effective January 1, 2017. No change
South Carolina No specific minimum wage rate under state law; the $7.25 federal minimum wage rate applies No specific tip credit minimum under state law; the federal $5.12 maximum tip credit applies No change
South Dakota $8.65, effective January 1, 2017 $4.325 Increase
Tennessee No specific minimum wage rate under state law; the $7.25 federal minimum wage rate applies No specific tip credit minimum under state law; the federal $5.12 maximum tip credit applies No change
Texas $7.25 $5.12 No change
Utah $7.25 $5.12 No change
Vermont $10.00, effective January 1, 2017 $5.00 Increase
Virginia $7.25 Employers should apply the maximum $5.12 federal tip credit, even though employers are not required to pay tipped employees a cash wage unless the employee demonstrates that tips do not equal at least the minimum wage. No change
Washington $11.00, effective January 1, 2017 $0.00; no tip credit allowed under state law Increase
West Virginia $8.75 Employers should apply the maximum $5.12 federal tip credit, even though the state-imposed maximum tip credit is higher at $6.13. No change
Wisconsin $7.25 $4.92 No change
Wyoming The $7.25 federal minimum wage rate applies because the state minimum wage rate is lower at $5.15. $3.02 No change

 

Employers may also want to be careful to take into account applicable local laws that set a higher minimum wage in certain cities or localities than the minimum wage generally applicable in the state. By way of example, the following big cities or localities currently impose minimum wages that are higher than the statewide minimum wage of the state in which they are located: New York City; Long Island and Westchester, New York; Los Angeles, San Diego, and San Francisco, California (among numerous other cities in California); Chicago and Cook County, Illinois; Montgomery and Prince George’s Counties, Maryland; Portland, Maine; Albuquerque and Santa Fe, New Mexico; and Seattle, SeaTac, and Tacoma, Washington. It is expected that this list will continue to grow in 2017.

 

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