CRS Provides Interpretation of Section 402 of ETETRA

Under the FLSA, an employer of a tipped employee is only required to pay $2.13 per hour in direct wages if that amount, when combined with the tips received by the employee, equals at least the federal minimum wage.³ If the employee's tips combined with the employer's direct wages of at least $2.13 per hour do not equal the federal minimum hourly wage, the employer must make up the difference.

Section 402 of H.R. 5970 would amend the FLSA to add the following paragraph to section 3(m) of the Act:

(2) Notwithstanding any other provision of this Act, any State or political subdivision of a State which on or after the date of enactment of the Estate Tax and Extension of Tax Relief Act of 2006 excludes all of a tipped employee's tips from being considered as wages in determining if such tipped employee has been paid the applicable minimum wage rate, may not establish or enforce the minimum wage rate provisions of such law, ordinance, regulation, or order in such State or political subdivision thereof with respect to tipped employees unless such law, ordinance, regulation, or order is revised or amended to permit such employee to be paid a wage by the employee's employer in an amount not less than an amount equal to --

(A) the cash wage paid such employee which is required under such law, ordinance, regulation, or order on the date of enactment of the Estate Tax and Extension of Tax Relief Act of 2006; and (B) an additional amount on account of tips received by such employee which amount is equal to the difference between the cash wage described in subparagraph (A) and the minimum wage rate in effect under such law, ordinance, regulation, or order, or the minimum wage rate in effect under section 6(a), whichever is higher.

Seven states do not recognize a tip credit for employers of tipped employees.⁴ In these states, the prescribed minimum wage is the same for both tipped and non-tipped employees. Stated differently, in these states, none of a tipped employees tips may be considered for purposes of determining if such employee has been paid the applicable minimum wage rate. Under the proposed language, such states would seem to be prohibited from enforcing the minimum wage rate provisions of their laws with respect to a tipped employee unless such laws are "revised or amended to permit such employee to be paid a wage by the employee's employer in an amount not less than" what is prescribed in the proposed subparagraphs (A) and (B).

Under general principles of statutory construction, the meaning of a statute must, in the first instance, be sought in the language in which the act is framed.⁵ If the language is plain, a reviewing court will enforce it according to its terms.⁶ In this case, the proposed language would seem to refer clearly to those states that exclude "all of a tipped employee's tips from being considered as wages in determining if such tipped employee has been paid the applicable minimum wage rate." California, as one of seven states that does not recognize a tip credit, would probably be affected by the enactment of the proposed language. As an affected state, California would appear to be unable to enforce its minimum wage rate laws with respect to tipped employees until it "revised or amended" such laws to permit tipped employees to be paid a wage that conforms to subparagraphs (A) and (B) of the proposed language. Thus, if enacted, California would appear to have to choose between the federal tip credit requirements or adopt a law that allows for some form of a tip credit under state law.

² 29 U.S.C. § 203(t).

³ 29 U.S.C. § 203(m). For additional discussion on tipped employees, see U.S. Dept. of Labor, Tipped Employees Under the Fair Labor Standards Act, available at [http://www.dol.gov/esa/regs/ compliance/whd/whdfs15.htm]. Congressional Research Service Washington, D.C. 20540-7000

⁴See U.S. Dept. Of Labor, Minimum Wages for Tipped Employees, available at [http://www.dol.gov/ esa/programs/whd/state/tipped.htm]. Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington do not recognize a tip credit.

⁵See 2A Norman J. Singer, Statutes and Statutory Construction § 46:01 (6^th ed. 2000).

⁶Id.