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The media continues to press presidential candidate Cain with a few tough questions, but it is time to ask him about minimum wages for restaurant staff. Given his record as past president of the American Restaurant Association he knows about sub minimum wage for tipped employees.

The Federal minimum wage went up to $7.25 an hour on July 24th 2009 but not for tipped employees whose minimum wage remains at $2.13 an hour. When the Fair Labor Standards Act was passed in 1938 restaurant workers, among others, were excluded from the minimum wage. In 1966 they were finally included, but only at 50 percent of the minimum wage. Some in the restaurant owners complained they shouldn’t have to pay any wages because their waiters and waitresses earned plenty from their tips.

Until 1996 the tipped wage went up when Congress raised the minimum wage, but in 1996 and again in 2007 the restaurant industry lobbied Congress to leave the tipped minimum at $2.13 an hour. The Federal tipped minimum has remained at $2.13 an hour since 1991, which makes it only 29 percent of the present $7.25 an hour minimum wage.

The sub minimum wage for tipped employees allows business to further bid down wages where there is a surplus of labor like there is today with 14 million unemployed. The definition of tipped employees governing the sub minimum wage further contributes to a surplus by enlarging the number of occupations and pool of people that can be paid a sub minimum wage.  That is because the sub minimum wage can be applied to employees in occupations that customarily receive as little as $30.00 a month in tips.

First, recognize that the monthly minimum wage at $7.25 an hour is $1,160 a month at 40 hours a week and 4 weeks per month. However, the $2.13 an hour sub minimum wage for tipped employees is just $340.80 a month, which means a tipped employee needs $819.20 a month in tips to get themselves up to the minimum wage.

Under federal rules governing the Fair Labor Standards Act employers who pay a sub minimum wage must verify that tips are enough to bring an employee up to at least the minimum wage, a practice known as taking the tip credit. Taking the tip credit requires detailed recordkeeping because employers are required to verify that tips are enough to make up the difference of the minimum and sub minimum wage. If tips are not enough to equal the minimum wage then the employer is expected to make up the difference.

Notice though that tips received up to $819.20 per month are in lieu of normal obligations to pay wages to employees. Even if tipped employees receive tips at or above $819.20 a month, wage costs drop from at least $7.25 an hour to as low as $2.13 an hour. Even when tips are less than $819.20 a month all of the tips recorded become a cost saving for their restaurant owners.

Fair Labor Standards rules also permit valid tip sharing agreements among tipped employees where tips are accumulated and redistributed by predetermined formula. Valid means agreements must be in writing and only include those who customarily receive $30 a month or more in tips. At a full service restaurant a number of different staff will meet the minimum tip requirement, but waiters and waitresses commonly get the largest share of tips over those who work as hosts, hostesses, runners, bartenders or other dinning room attendants and staff.

Tip pooling potentially saves on wage costs by helping to eliminate wage gaps among tipped occupations. Without tip sharing, wages plus tips for waiters and waitresses will tend to be higher than wages and tips for a host or hostess or bartenders, bus staff and other staff with less access to customers. Wage gaps make it harder to get people to do the host and hostess job without paying higher wages as long as we expect that people will want to leave low wage jobs for higher wage jobs. Tip sharing relieves that pressure by transferring tips from waiters and waitresses to hosts, hostess, bartenders and so on. Tip sharing improves the economic situation of these other staff, but at the expense of waiters and waitresses and not their employer. Tip sharing, like the sub minimum wage, saves wage costs for restaurant owners and relieves them of the normal obligation to pay wages.

Tipped employees work mostly in the full service restaurant industry, hotel and motel accommodations, personal services and attendants at parking lots and car washes.  The Bureau of Labor Statistics defines 22 occupations in industries that customarily receive tips where employment came to 9.5 million in 2010. Food and beverage serving workers had 7.6 million of these jobs and 2.2 million of them as waiters and waitress. Personal appearance workers had 457 thousand employed in tipped occupations with the majority of them as hairdressers and hair stylists. Maids, bellhops, concierge and other transportation and tourism workers had 964 thousand jobs with nearly 866 thousand as maids. Parking lot attendants, and those cleaning vehicles, mostly at car washes, have another 413 thousand jobs. The total is nearly 7.5 percent of national establishment employment.

Despite the business and restaurant opposition that surrounds Congressional proposals to change the minimum wage, the regulations for the Fair Labor Standards Act provide many exemptions and legal ways to avoid and undermine the minimum wage in addition to the sub minimum wage for tipped employees. In practice the Federal minimum wage does not apply to millions of jobs or wages.

The record shows that America’s restaurant association lobbies to undermine the already low minimum wage. We know there are millions of cheapskates who support the sub minimum wage, but it’s time to ask Mr. Cain if he is one of them, or one of us who work for a living.

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Comment Preferences

  •  I was wondering when this would get mentioned (2+ / 0-)
    Recommended by:
    MsGrin, Jbearlaw

    His business experience is almost entirely in the restaurant field, Pillsbury, Burger King, NRA, Godfather's. Was this his jobs plan for America?

  •  This is a great diary and important issue. (3+ / 0-)
    Recommended by:
    importer, JVolvo, Sharon Wraight

    Too bad it is not getting any notice.  

    The whole basis of tipping used to be to acknowledge good or great service, and most people still think of it that way.  And that would be accurate, if tipped employees received the same minimum wage as everyone else.  

    The whole justification for this unfair treatment, and I've heard it many times from Republicans, Independents, and even Democrats, has always been that "wait staff" don't report their tips, and so it's tax free income, and they are cheating the system, so it's fair.  To whatever degree that used to be true, so many people pay with debit and credit cards anymore that the percentage of tips paid with cash has been slashed compared to what it was 60, even 20 years ago.  That justification really isn't valid anymore, if it ever was, and we need a wider public discussion of this issue.  Thanks for bringing it up.  

    We are the first to look up and know, with absolute certainty, that the sword we ourselves have forged, is real.

    by Jbearlaw on Wed Nov 02, 2011 at 02:48:30 PM PDT

    •  It isn't valid and never really was..... (3+ / 0-)
      Recommended by:
      JVolvo, Sharon Wraight, ebohlman

      not only can they track tips on credit cards, the employees have to declare their tips.  Even if their declaration is low, they are not getting rich at $2.13 an hour + tips.  

      I have heard of employers who pay the difference between minimum wage and tips.  In other words, they figure the tips, first and then pay something under $2.13 an hour so that they employee only comes out with minimum wage, no matter how much they hustle.  I questioned whether that was legal, but have heard it more than once.

      When the employer cries that he can't run his business without paying minimum wage or less to his employees, he needs a new business model.  There is no class of worker more exploited than those in the hospitality industry.    

  •  Can you provide a link or three? (2+ / 0-)
    Recommended by:
    twigg, a gilas girl

    The Fair Labor Act is easy enough to pull up online from various sources but some of the material on lobbying, it would be nice to see some sources or external reporting/commentary.

    "I'm not writing to make conservatives happy. I want them to hate my opinions. I'm not interested in debating them. I want to stop them." - Steve Gilliard

    by grog on Wed Nov 02, 2011 at 02:58:06 PM PDT

    •  FLSA links (0+ / 0-)

      The national employment labor project at nelp.org has often taken up minimum wages issues. My blog at americanjobmarket.blogpost.com has more discussion on minimum wages. The department of labor also is a place to look because they always correctly and specifically cite the laws and regulations. Other of course there is google.

  •  Tips are effectively a sales commission (1+ / 0-)
    Recommended by:
    chuco35

    for wait staff, with the additional factor that the rate varies with how satisfied the customers are.

    In commission paying jobs that have similar jobs at other businesses that are salary or hourly only, the hourly base or salary is generaly significantly lower than the jobs without commissions.  Why this is the case is obvious to those who understand markets.

    The bigger economic factor for the restaurant owner is that instead of having a strictly fixed labor cost, she has a variable cost that is higher when business is good and lower when business is bad.  The wait staff is also compensated for encouraging the customer to buy more, as well as provide good service so the customer will return.

    I suspect most people working at tip paying jobs would prefer what they get today over getting the minimum wage without tips.  However, this would not be true in all cases, especially in places hit especially hard by today's economy or at restaurants with corrupt management or staff.

    At the same time! proposing a law to make tips illegal and all labor subject to a single minimum wage rate would find tipped employees as its greatest opponent.

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Wed Nov 02, 2011 at 03:40:51 PM PDT

  •  Question about social security contribution (1+ / 0-)
    Recommended by:
    chuco35

    OK, so a regular employer contributes ~6.5% of an employee's salary to social security. So in the case of restaurant workers, would that be 6.5% of the base slalary+tips, or 6.5% of only the $2.13 base salary? If it is the latter, the restaurant industry is seriously cheating the social security system. They are not paying their fair share.

  •  This issue keeps coming up (0+ / 0-)

    because a tiny percentage of waitstaff works at expensive restaurants where even with tip sharing they make money hand over fist. The overwhelming majority of waitresses and waiters work very hard at marginal part time jobs, but hear how they don't deserve any more because of the apocryphal high paid waiter at the famous chef restaurant. Note I say "waiter". Ritzy restaurants who refuse to hire women in well-paid front of the house jobs are common.

  •  Yep (0+ / 0-)

    Whenever a co-worker complains about the 2.83 wage, I say, "Our employer has better lobbyists than we do."

    "A cynical, mercenary, demagogic press will produce in time a people as base as itself." - Joseph Pulitzer

    by CFAmick on Wed Nov 02, 2011 at 08:40:08 PM PDT

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