Today’s car wash industry can be described in one word, everchanging. Change has been constant in the industry, from the days when car washes used to be completely supported by manual labor, to being fully automated, and then to being a mix between automated and manual. However, whether fully automated or manual, car wash owners still face issues with labor that all employers must confront in the course of running their business. Given the labor shortage running rampant throughout the United States, it is essential for employers to comply with all labor laws to avoid costly penalties that can have a devastating effect on their business.

            To maintain a happy and healthy workforce, car wash and auto detailing employers must be aware of volatile laws affecting labor throughout the country. The Department of Labor has identified multiple issues related to labor that the car wash industry has struggled to comply with. This article will focus on three problem areas identified by the department: minimum wage laws, misclassification, and tipped employees. By addressing these three areas, car wash employers can feel reassured that their labor force is one that is built to weather any storm.


            With the cost of living constantly increasing in the United States, a multitude of states have increased their minimum wage in 2023. Currently, 29 states, plus the District of Columbia, have minimum wages that are greater than the federal minimum wage which has been stagnant at $7.25. As of January 1, 2023, the following states have increased their minimum wage: Arizona at $13.85; California at $15.50; Colorado at $13.65; Delaware at $11.75; Illinois at $13.00; Massachusetts at $15.00; Maryland at $13.25; New Jersey at $14.13; New York at $14.20; Rhode Island at $13.00; Virginia at $12.00; and Washington at $15.74. In addition to those states, some states have pending minimum wage increases that are currently being litigated and may become effective later in the year. Furthermore, some states have even more intricate minimum wage structures such as the state of New York. New York incorporates both the size of the employer — which is calculated by the number of individuals employed by the employer — and the geographic location of the employer to calculate the minimum wage required to be paid as show in the example below.

            Given the complexities associated with minimum wage laws, car wash employers who honestly believe the wages they are paying adhere to legal requirements can end up owing thousands of dollars in unpaid wages to their staff. Thousands of dollars in unpaid wages can cripple smaller operations and put unneeded pressure on large ones. Thus, it is essential that every employer stay up to date with minimum wage laws to ensure the stability of their labor.


            Independent contractors are individuals not employed by an employer that are contracted to perform some kind of service. Under federal law, independent contractors are not granted the same protections — like a minimum wage — that employees are. Additionally, because independent contractors are not employees, employers have no duty to pay payroll taxes associated with the labor provided by the independent contractor. Many employers see independent contractor labor as a financial advantage; the employer is allowed to cut payroll taxes and avoid pesky minimum wage mandates which can save their business thousands of dollars. However, many employers erroneously classify laborers as independent contractors when the laborer is legally their employee. Although the definition of who an “employee” is varies from state to state and scenario to scenario, the Department of Labor has identified three main elements that distinguish an employee from an independent contractor.

            For the purposes of this article, the main element employers should keep in mind is control. Independent contractors control how they perform the work they are responsible for without input from the individual who is contracting for their services. For example, if an employer has set guidelines as to how the laborer is to perform the car washing — such as rinsing the entire vehicle twice — then the laborer is likely to be their employee as they must rinse the vehicle twice to successfully perform their duty. Conversely, if the laborer is simply tasked with “washing the car,” then the laborer will likely be considered an independent contractor as they have free reign to wash the vehicle in any manner they see fit.

            Misclassification of workers can be extremely costly to any employer in any industry. Such practices can lead to costly lawsuits for unpaid overtime and minimum wage violations. Additionally, employers can be subject to hefty tax fines and fees. The Internal Revenue Service has stated that an employer who has failed to pay payroll taxes for employees can be subject to penalties of “up to 3 percent of wages, plus up to 40 percent of the FICA taxes that were not withheld from the employee, and up to 100 percent of the matching FICA taxes the employer should have paid. If the IRS determines that an employer misclassified its employees willfully, the penalties are even greater.” Given the severe penalties associated with misclassification of laborers, and the incentives government agencies have for finding such violations, it is essential that employers properly classify their employees to protect their business and labor force.


            Many car wash businesses take a “tip credit” toward their minimum wage and overtime requirements. What this means is that instead of paying employees the standard minimum wage set in the employer’s state and by the federal government, the employer pays the employee a minimum base pay of $2.13 per hour with the rest of the mandatory minimum wage paid by tips the employee receives. Although this practice is prevalent, it is complex for payroll purposes and can lead to serious wage violations. Additionally, employers must understand that the federal Fair Labor Standards Act prohibits employers from keeping any amount of tips their employees earn, except to instate a proper tip pool. Furthermore, employers may not mandate that employees turn over their tips to supervisors or managers of the employer. In one New York City case, the owner of a car wash was ordered to pay $8.5 million dollars associated with a wage theft claim against the owner. The owner paid his employers via the “tip credit” method, however, he often took a share of the tips and would distribute amounts he calculated to his workers which did not total the minimum wage they were due for the hours they worked. Additionally, the employer would often take money from the tip box to pay customers for any damage done to their vehicle by the machine in the car wash. These practices were strictly prohibited by state and federal law and the owner of the car wash suffered the consequences of his negligent and intentional actions.


            You may be asking yourself, how can I avoid these issues and avoid business disruption? Simply put, ensure your payroll practices (such as compensation and tip policies) comply with applicable state and federal laws. Further, ensure your workforce is properly classified. In most cases, car wash workers will be considered employees and not independent contractors due to the nature and control car wash operations exert over their workforce. As always, confer with your legal counsel to ensure you avoid these costly mistakes.

Jacob M. Monty is the managing partner of the Houston-based law firm, Monty & Ramirez LLP. Monty is board certified in labor and employment by the Texas Board of Legal Specialization.
Nallely I. Rodriguez is a senior associate attorney in the firm’s labor and employment practice area. Monty & Ramirez LLP is an employment, labor, and business immigration law firm. Visit for more information.