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This diary is a follow up to Laura Clawson's great Front Page piece. I just wanted to add a few things and I had more than a comment could hold.

Anybody out there work for tips? Or related to someone who works for tips? Or patronizes someplace where people work for tips?

Then this is an issue that affects you. Follow along as I try to unpack tip wages, tip credits, minimum wage and living wages for the fastest growing segment of US workers.

Basically, the federal minimum wage is $7.25 an hour, but the wage that an employer can pay a tipped worker, if they meet certain requirements — and the bar is pretty low — is $2.13 an hour. It’s been $2.13 since 1991.  
Sylvia Allegretto co-director of the Center on Wage and Employment Dynamics at UC Berkeley
That amount of money that an employer doesn't have to pay because an employee is tipped is called a "tip credit". Basically, that tip money is considered part of a wage and it is subsidized by the customer. The $2.13 an hour that employers are required to pay is called the subminimum wage.

photo credited to WonderWhy on Flickr

An employer of a tipped employee is only required to pay $2.13 an hour in direct wages if that amount plus the tips received equals at least the federal minimum wage, the employee retains all tips and the employee customarily and regularly receives more than $30 a month in tips. If an employee's tips combined with the employer's direct wages of at least $2.13 an hour do not equal the federal minimum hourly wage, the employer must make up the difference.
US Dept of Labor Fair Labor Standards Act (emphasis mine)
If someone could elucidate the italicized portion, I would be grateful.

Follow Me Across the Squigglies to Your Table

The Economic Policy Institute at UC Berkeley recently published a study, Twenty-Three Years and Still Waiting for Change Why It’s Time to Give Tipped Workers the Regular Minimum Wage authored by Sylvia A. Allegretto and David Cooper.

The authors also illustrate why you should care about the tip wage, the tip credit and minimum wage:

Employment in the full-service restaurant sector has risen nearly 86% between 1990 and 2013. Overall job growth in the private sector was 24%. These jobs are making up an increasingly large segment of the population.

Tipped workers live in poverty at a rate nearly twice that of non-tipped workers. Also, poverty rates are lower for tipped workers in states that require the full minimum wage.

Nearly 46% of tipped workers and families receive public benefits. 35% of non-tipped workers and their families are on public assistance. This means that taxpayers are subsidizing wages.

First, Let's Ask The Wall Street Journal, Shall We

"Tips Don't Add Up for Most Waiters and Waitresses" was written by Jo Craven McGinty on August 8, 2014. The subtitle is "Some Live in Poverty, While Median Income Falls Below Average".

"Nearly 15% of the nation's 2.4 million waiters and waitresses live in poverty, compared with about 7% of all workers. They are more likely to need public assistance and less likely to receive paid sick leave or health benefits—and their ranks are increasing. From the start of the recovery in 2009 until June of this year, restaurant jobs have increased by 13%, while all other jobs are up 5.5%"
In the interest fairness, the National Restaurant Association disagrees. Of course, they also spent $2.2 million in lobbying efforts to fight any minimum wage increase last year.
"No one is making $2.13 an hour," Scott DeFife, executive vice president of policy and government affairs for the National Restaurant Association, a trade organization that opposes raising the minimum wages, said in a statement. "Every tipped worker is guaranteed at least the minimum wage of their state, more than half of which have increased both the tipped wage and minimum wage to above federal levels."
Even given the NRA's opposition and granting their numbers, a disparity exists.
"[T]he Bureau of Labor Statistics reports the median wage for waiters and waitresses is $8.94, including tips, although the National Restaurant Association, based on its own surveys, says that number is low. The median for all other workers is $15.84."
The Economic Policy Institute, a left-leaning think tank, found in 2011 that tipped workers are more than twice as likely as other workers to fall under the federal poverty line.

Make No Mistake! Operating Profits In Hospitality Are Thin

No one is disputing the fact that it is difficult to turn a profit in the Hospitality industry, least of all me. I have seen both sides, lower wage employee as well as manager responsible for keeping the doors open and the lights on.

It is perfectly understandable that restauranteurs are concerned about remaining in business. There seems to be, however, a lack of reliably unbiased data on the effects of eliminated the tip wage on profitability.

I am keenly aware of the fact that the tip wage issue does nothing to address the pay of those in the Back of the House who are preparing the meals and washing the dishes. There is a legitimate point to be made that addressing pay for servers while in effect ignoring their untipped peers could lead to unrest in the workforce.

In my experience, it is common for cooks and dishwashers to complain that servers take home more than they do. Of course, this is countered by the fact that their income is more predictable.

Fear of A "$25 Hamburger"

And then there is the notion that prices will have to rise in order to cover the increased operating costs associated with eliminating the tip wage allowance.

From an article published by Zagat:

In other words, as a big-name restaurant owner who wished to remain anonymous warns, “Get ready for the $25 burger.”
This view is countered by Sacramento business owner Sean Kohmescher. Kohmescher says that modest price increases haven't aroused many complaints from customers.
“If you talk about 25 cents, what’s that in a parking meter? That’s 10 minutes of parking. In today’s day and age, 25 cents doesn’t really buy a lot. We generally over-think it and overreact to it far more than the customers. We’re just sensitive. We don’t want to have to raise prices.”
Then again, restaurants could do what Alice Watters and Chez Panisses in Berkeley are doing. The restaurant has been charging a service fee since 1989 that has gone toward raising the paychecks of all it's employees.

Allegretto and Cooper Disagree

Again from Sylvia Allegretto:

"You can just look at all the variation that’s out there — all these states that have $2.13 an hour all the way up to Washington state, where tipped and regular workers are making well over $9 an hour. According to the National Restaurant Association, all these places that don’t have a subminimum wage shouldn’t have restaurants. But they do."

And Now For Some Industry-Funded Fear Mongering

A billboard that appeared in San Francisco in June 2014
A billboard that appeared in Los Angeles in June 2014.
So, who is It is a campaign backed by the Employment Policies Institute. Follow me over to The New York Times for some elucidating information about the EPI.
"The Employment Policies Institute, founded two decades ago, is led by the advertising and public relations executive Richard B. Berman, who has made millions of dollars in Washington by taking up the causes of corporate America. He has repeatedly created official-sounding nonprofit groups like the Center for Consumer Freedom that have challenged limits like the ban on indoor smoking and the push to restrict calorie counts in fast foods."

5:40 PM PT: An UPDATE from graits4:

Just a note regarding your image, though:
Ohio's tipped wage is tied to our own minimum wage and goes up every so often (it's in our state Constitution now. Yay?). It's now $3.98.

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Comment Preferences

  •  Tip Jar (12+ / 0-)

    "when the going gets weird, the weird turn pro"

    by gravlax on Sat Aug 30, 2014 at 05:01:16 PM PDT

  •  Trying to rec (4+ / 0-)
    Recommended by:
    MizC, gravlax, bluenick, onmyknees

    But my phone is not cooperating.

  •  It Doesn't Become Any Harder to Offer a Meal (4+ / 0-)
    Recommended by:
    gravlax, gratis4, a2nite, ChocolateChris

    when the base income goes up when it rises across the board. That's what minimum standards of any kind are for, they're to ensure that nobody can gain an economic advantage by abusing their workers financially, in overwork or any other way.

    Right, the burger doesn't go up to $15 if you train your worker so that they can make two in an hour, then the burger would only go up $7.50.

    I clever employer might be able to spread that price out over even more servings.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Sat Aug 30, 2014 at 05:35:12 PM PDT

  •  Another thing to consider (3+ / 0-)
    Recommended by:
    gravlax, bluenick, Jilly W

    Restaurants (at least in Ohio, where I'm at) have downgraded positions like bussers and hosts from hourly to tipped employees- but is paid tips by the servers.

    The server in this instance tips out, for example, 5% of their total sales to management who then divides that up between the other areas on pay day. So, if the server sells $1,000 then s/he must then tip out $50 of their own tips. The server then is effectively paying the host's or busser's wage.

    Now, if that server has a bad night and is stiffed (not given a tip) on a high check, too bad so sad. Said server is still responsible for the tip out for that table.  Surprisingly, this can happen quite a bit if there are a lot of gift cards or if there is a buffet (people don't like to tip for buffets because they don't feel they're getting served anyway).

    Just a note regarding your image, though:
    Ohio's tipped wage is tied to our own minimum wage and goes up every so often (it's in our state Constitution now. Yay?). It's now $3.98.

    Thank you for writing this.

    My actions are my only true belongings. I cannot escape the consequences of my actions. My actions are the ground upon which I stand. ~Thich Nhat Hanh

    by gratis4 on Sat Aug 30, 2014 at 05:37:49 PM PDT

  •  Tipped wages should be abolished. (2+ / 0-)
    Recommended by:
    gravlax, Blue Republican

    The minimum wage should be the same for everyone, and any tip should be considered a gift for exceptional service rather than an expectation.

    •  I'd like to see tipping be banned altogether (1+ / 0-)
      Recommended by:

      I remember a time when the standard for tipping used to be 10%.  Then it crept up to 15% and now anything less than 20% is considered an insult.

      There is this pervasive peer pressure and expectation to tip, and it creates a disincentive to going out to eat altogether.

      When I went to Paris a couple of years ago, I found the concept of no tipping to be quite refreshing.  Sure, the prices at restaurants were higher than their counterparts in the US, but there was no price shock when it came to pay the bill--you made a mental note of how much everything was going to cost and it matched what was going to show up on the bill.

      Many tipped workers make quite a bit of money, and a lot of that is not reported.  By getting rid of the concept of tipping, this would be good for tax revenues as well.

      So the restaurant ion associations, and many tipped workers like the status quo as it is now.  If customers collectively decided to go on a tip strike, that would certainly create an impetus to change the system.

  •  When I wated tables (1+ / 0-)
    Recommended by:

    We had to declare that we were getting the minimum wage regardless of what we actually got that week in tips. If the week was bad, it did not matter, we had to declare that we got enough. Sometimes we got more, and didn't declare that, so we were thinking at the time that it all evened out, but in reality the unpredictability was a problem.

    The main reason I went for those jobs is because you got to eat at the restaurant the first day. I was hungry!

    Women create the entire labor force.
    Sympathy is the strongest instinct in human nature. - Charles Darwin

    by splashy on Tue Sep 02, 2014 at 09:23:37 AM PDT

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