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Minimum Wage Set to Rise

July 23, 2009

By:Jim O'Brien , O'Brien & van Stiphout LLC

As Friday, July 24, 2009 the federal minimum wage will rise to $7.25 per hour.  That means that DC’s minimum wage will also rise on that day to $8.25 per hour, because the DC minimum wage law requires the payment of $7 per hour, or the federal minimum wage plus $1, whichever is higher. The minimum wage in both Virginia and Maryland will rise to the federal rate, $7.25 per hour.

The federal tip credit rate (also applicable in Virginia) will remain the same, $2.13 per hour.  And while the tip credit rate in DC is not directly tied to the federal tip credit rate, it too will remain frozen at its current $2.77 per hour, thanks to the efforts of your Restaurant Association of Metropolitan Washington in helping to craft the current DC minimum wage law in 2004.

Members should be aware that some payroll services and consultants seem to be unaware of the statutory provision which froze the DC tip credit rate at $2.77 per hour, and are applying the old DC statute which limited the tip credit amount to no more than 55% of the minimum wage then in effect.  Applying the old law yields the incorrect tip credit rate of $3.71 per hour, unnecessarily adding 94 cents per hour, per tipped employee, to a restaurant’s payroll.

Of course, the tip credit is available only where the employee meets the legal definition of a tipped employee (defined under federal law as an occupation in which the employee customarily and regularly receives tips of more than $30 per month).  In addition, the following requirements must be also met: (1) the employee must actually receive tips in an amount at least equal to the difference between $7.25 and $2.13/hour (federal/Virginia) or $8.25 and $2.77/hour (DC); (2) the employer must notify the tipped employee in advance that he or she is subject to the tip credit rate; and (3) all tips must be retained by the tipped employee (but not to preclude a voluntary, employee-organized, tip pool).

For specific questions about the upcoming rise in the minimum wage, or the tip credit law, please contact Jim O'Brien at O'Brien & van Stiphout LLC .
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