LIHU‘E — Hawai‘i’s minimum wage will rise to $12 per hour on Oct. 1, and then will go up by $2 every other year until it reaches $18 per hour on Jan. 1, 2028.
Meanwhile, the tip credit, or “tip penalty,” will increase by 25 cents from 75 cents to a dollar Oct. 1, and will continue to increase by 25 cents every other year until it reaches $1.50 on Jan. 1, 2028.
This allows employers to pay less than the full minimum wage to workers who make at least $20 in tips per month, as long as the worker makes at least $7 above the minimum wage in combined wages and tips per hour after the penalty is calculated.
How tip penalty works in practice
On Oct. 1, an employer will be able to deduct up to $1 from the minimum wage of a tipped worker, as long as the penalty does not drop the worker’s combined wages and tips below an average of $19 an hour after the penalty is applied.
In other words, a worker who makes an average of at least $8 an hour in tips in a week could be paid $1 less than the minimum wage, reducing their wage to $11 an hour (plus the $8 in tips for total income of $19 an hour).
Employers are required to post such a notice in a visible location accessible to employees.
Employers can deduct a smaller amount if the worker makes between $7 and $8 an hour in tips. For example, a tipped worker who makes an average of $7.50 an hour in tips could have a 50-cent tip penalty applied to their wage, resulting in a wage of $11.50 an hour.
The employer is required to:
• Notify all employees in writing at the time of hire if they plan to use the tip penalty;
• Notify employees of any changes in their tip penalty policy — in writing or through a posted notice — prior to the start of the pay period;
• Report to employees in writing each time the amount of tip penalty taken changes from the amount per hour taken in the preceding week;
• Maintain time records. Tipped workers should review their paystubs regularly to make sure they are making at least $7 above the minimum wage after the tip penalty is applied.
If an employer is improperly applying the tip penalty, workers can contact the Wage Standard Division of the state Department of Labor and Industrial Relations Kaua‘i office at 808-274-3351.
The DLIR may recover back wages, either administratively or through court action, for employees who have been underpaid.
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This information was provided by pro-minimum-wage advocacy group Raise Up Hawai‘i.
