Following up on my previous blog post, there was considerable debate at Monday’s DC Council hearing on whether the city should raise the tipped minimum wage. One area restaurant owner in particular was adamant that there should be no change to the city’s current tipped minimum wage of $2.77 per hour. He argued that the council was attempting to “fix something that [was not] broken”—in that all of his tipped employees already earn far more than minimum wage under the current system, and if they did not, he was legally obligated to make up the difference. This is, by law, how the system should work. Notwithstanding the fact that his particular restaurant is a high-end nightclub where the average bill (and thus the average tip) is likely to be quite high, the evidence suggests his characterization reflects the exception rather than the norm for tipped workers.

Under current federal law, workers who customarily receive at least $30 from tips per month may be paid a base wage of only $2.13 per hour by their employer, so long as the their weekly earnings—tips plus base wage—equal an hourly rate of at least the regular federal minimum wage of $7.25. In other words, when you go to a restaurant in most places in the country, the server or bartender who serves you is only being paid something between $2.13 and $5 per hour by their employer, depending on the state. There are 18 states where the tipped minimum wage is $2.13, eight states where the tipped minimum wage is equal to the regular minimum wage, and 26 states with a tipped minimum somewhere in between. In the District of Columbia, the regular minimum wage is $8.25, and the tipped minimum wage is $2.77.

 In every state where the tipped minimum wage is not equal to the regular minimum wage, if a tipped worker’s tips for the week do not bring them up to an hourly wage of at least their state’s regular minimum wage, then their employer has to pay the difference. Unfortunately, this is not easy to enforce. In a particularly revealing moment at Monday’s hearing, a representative from the Restaurant Association of Metropolitan Washington testified that the association had surveyed its members—the owners of area restaurants—and they had reported zero instances of workers being paid less than the minimum wage. That is to say, their members did not self-report their own violations of the law.

Yet according to the Department of Labor, between 2010 and 2012 the department’s Wage and Hour Division conducted nearly 9,000 investigations throughout the country in the full service sector of the restaurant industry. The violation rate of the investigated restaurants was 83.8 percent.1 DOL notes that this data cannot be viewed as representative of the industry as a whole, and the violations may not have been specifically for underpaying tipped employees. But the remarkably high violation rate leads one to think that there are probably at least a few bad actors within the region’s restaurants.

Beyond compliance issues, there is evidence that having a separate minimum wage system for tipped workers may lead to measurably different standards of living for tipped versus non-tipped workers. As I noted in my testimony, there is a large disparity in poverty rates between tipped workers and the workforce at large. However, this disparity is significantly smaller in the 8 states where the tipped minimum wage is equal to the regular minimum wage. The chart below is from a 2011 EPI-UC Berkeley study on tipped workers.

As this table shows, the poverty rate among tipped workers nationwide is more than double that of all workers, with restaurant servers experiencing even higher poverty rates. Note, however, the difference in poverty rates among tipped employees in states with “low” tipped minimum wages (where the tipped minimum wage is $2.13) and states with “equal treatment” (where the tipped minimum wage is the same as the regular minimum wage). Even though these two groups of states have the exact same poverty rate of all workers, the poverty rate among tipped workers in the “equal treatment” states is 4 percentage points lower than in the “low tipped minimum” states. Among restaurant servers, the poverty rate in “equal treatment” states is 5.8 percentage points lower than in the “low tipped minimum” states.

Admittedly, this analysis lacks the more rigorous regression methods that could show a more direct causal relationship between lower tipped minimums and higher poverty rates among tipped workers, but the correlation is undeniable.

Owners of high-end area restaurants may be justified in thinking that their tipped employees have adequate levels of income, but this is clearly not the case for all tipped workers. The data strongly suggest that having a carve-out in our country’s wage laws just for the restaurant industry is leading to a case of ‘separate, but not equal’ protection for this large, and growing, group of American workers.2

 To paraphrase one of the witnesses at the hearing: why is it that for one industry in America, consumers have to pay a portion of the employer’s minimum wage obligation?

Endnotes

1. The Department of Labor has not published this statistic anywhere, but it was confirmed via email with DOL staff.

2. There are, of course, tipped workers outside of the restaurant industry—barbers and hair stylists, gaming service workers, car washes, shoe shines, and other personal services workers, among others—but the majority of tipped workers are in restaurants. Moreover, in 1996, when the tipped minimum wage was decoupled from being 50% of the regular minimum wage and was frozen at $2.13 per hour, it was understood as a concession to the National Restaurant Association, which had lobbied heavily for such decoupling, and continues to be the leading voice opposing parity for all workers.