What is going on with Denver restaurants lately? It feels like a beloved spot closes every week, menu prices seem to keep going up, and what about all those confusing service fees and tip options? Running a restaurant isn’t cheap or easy — just ask Juan Padró, founder of Culinary Creative Group (the company behind Mile High faves like Highland Tap & Burger, Mister Oso, Bar Dough, Fox and the Hen, and more). He and policy expert Scott Wasserman joined the City Cast Denver podcast today to talk about a big idea they have to increase the “tip credit,” which would essentially lower the tipped minimum wage.
But even following along with this debate is complicated! Service charges? Tip credits? What are these terms and what do they mean when they show up on your receipt?? We’ve whipped up this tipping glossary to try to help you make sense of it all.
Tip or Gratuity
A voluntary payment from a customer (of an amount the customer determines) in addition to what’s owed for goods or services.
Tipped Minimum Wage
Employers are permitted to pay employees who make tips (aka "tipped employees") less than the legal minimum wage for their base hourly pay. The “tipped minimum wage” is the amount an employer must pay a tipped employee. In Denver, that’s currently $15.79.
- BUT all employees are entitled to the legal minimum wage amount (in Denver, that’s currently $18.81). So if a tipped employee’s tips aren’t enough to make up the difference between their base hourly pay and the legal minimum wage, an employer must pay the difference ($3.02 in Denver).
Tip Credit
As long as a tipped employee is making the legal minimum wage with their hourly base pay plus tips, an employer doesn’t have to pay that $3.02 difference. That’s called claiming a “tip credit."
Tip Pooling
Rather than a direct exchange between one customer and one employee, all tips from all customers are consolidated into one lump sum that is then divided and distributed among all or select employees.
- IF there are tipped employees and non-tipped employees (like, the kitchen staff or hosts) in that tip pool, the employer must pay all employees the full legal minimum wage.
Tip Splitting/Sharing
When employees are asked to give a percentage of the tips they’ve received to other select employees — usually employees who didn’t have as much direct contact with the customer.
- IF an employer requires tipped employees to share tips with non-tipped employees (like, the kitchen staff or hosts), the employer must pay all employees the full legal minimum wage.
Service Fee/Charge
A service fee is often (but not always) presented in lieu of tipping. This charge usually comes in the form of a set percentage added to the total amount owed. Employers often use the service fee to pay their employees full wages so they're not relying on tips.
- BUT that's not always the case. Unlike a tip, an employer is not required to give service fee revenue to employees — they can use that money for whatever business purposes they'd like. If a restaurant doesn't accept tips, it likely IS paying its employees the full legal minimum wage. If a restaurant suggests a tip on top of a service charge, its employees may still be relying on your tip as part of their wages.
Tip Fatigue
A relatively new term used to characterize the feelings of pressure and guilt experienced by customers who may feel like tipping has become more of a social obligation and less of a choice.
