The call to end the tipped minimum wage is growing louder. Here’s what that means for HR.

When fast-food workers began walking off the job to demand a $15-an-hour minimum wage in 2012, McDonald’s was at the center of the fight. The fast-food chain resisted workers demanding higher pay for a number of years, though ultimately capitulated, saying it wouldn’t oppose policies to increase the minimum wage at the state or local level.

Given the chain’s previous opposition, it was somewhat surprising to see McDonald’s recently call on its restaurant-industry colleagues to pay their workers more.

McDonald’s opposes low wages for restaurant workers. In early September, McDonald’s CEO Chris Kempczinski spoke out against the tipped minimum wage, which allows establishments like restaurants and bars to pay their tipped workers as little as $2.13 an hour, as long as they earn the federal minimum of $7.25 when tips are included. This practice creates “an uneven playing field,” Kempczinski told CNBC.

The issue even led McDonald’s to pull out of the National Restaurant Association, the lobbying organization that opposes movements like Fight for $15.

McDonald’s, of course, has a dog in the fight, as it’s not able to take advantage of the tipped minimum wage. Meanwhile, competitors like Chili’s are able to save labor costs by paying their workers below the federal minimum, and in turn offer prices on par with McDonald’s, the Wall Street Journal reported.

How tipped wage policies are affecting HR. McDonald’s is the biggest fast-food chain to put its thumb on the scale with regards to the tipped minimum wage, but the debate has already prompted policy changes at the state and federal level—with implications for HR teams.

Both Democrats and Republicans embraced proposals to end taxes on tips during the 2024 presidential campaign, and a version of this policy ended up in the Republican tax bill that was enacted in July. Starting next year, workers in certain jobs can deduct up to $25,000 from their tipped income each tax year. It’s unclear how widespread an effect the policy will have on tipped workers, as many don’t earn enough income to pay federal taxes, but it’s likely to change reporting requirements for employers (a draft version of a W-2 form for 2026 includes sections for businesses to report “qualified tips” and a code for a worker’s “tipped occupation”).

The “no tax on tips” proposal was a “red herring” to cater to low-wage workers, said Saru Jayaraman, president of the advocacy organization One Fair Wage. Nevertheless, “it at least elevated the question of, what are we going to do for this massive workforce that is the lowest paid workforce in America and is living on tips?” she said.

Several jurisdictions—including California, Washington state, Chicago, and DC—have already enacted laws to phase out the tipped minimum wage. Jayaraman expressed optimism that McDonald’s could spur more companies to speak out about paying workers a full minimum wage.

Impact on companies. When asked about how paying a full minimum wage has impacted businesses, Jayaraman pointed to Denny’s. In 2021 its CFO admitted on an earnings call that raising the minimum wage to $15 an hour in California had been good for the chain’s bottom line.

Another factor HR teams may have to consider when looking to raise tipped workers’ wages is just how widespread the practice of tipping has become in US establishments.

“I don’t see us getting away from a tipping culture. It seems to be continuing to build,” said Erica Brune, CEO and co-founder of Lever1, an HR outsourcing firm based in St. Louis. Brune said she hasn’t seen many of Lever1’s clients in the hospitality industry move to raise base pay and phase out tipping, but rather focus on how to offer a competitive salary when taking both hourly pay and tips into account.

She noted that when employers do decide to raise wages, it’s hard to walk back that decision.

“When you change a wage base, you can’t step it back,” she said.