The tipped minimum wage is sort of a scam

Posted on February 12, 2014

Most restaurant guests think that when they tip a waiter their money is going to that employee, or at least is pooled among the workers. But in 43 states, that’s not really the case. Much of that tip is—indirectly—being pocketed by the restaurant.

Here’s how. Most states have a lower minimum wage for tipped employees than for everyone else. On the federal level, the current minimum wage is $7.25/hour but for tipped employees it’s only $2.13/hour. Part of our tips subsidize the restaurants for the missing $5.12/hour and only part increases the overall wages of the servers.

Why are corporations allowed to skim off employee tips? Why has the federal tipped minimum wage remained stuck at $2.13/hour since 1991? The National Restaurant Association (called the “other NRA” in Washington) has convinced Congress that waiters make enough money. But, as you surely know, that’s not true.

A 2011 EPI and UC-Berkeley study showed that the poverty rate among tipped workers nationwide was 14.5 percent, more than double the 6.3 percent poverty rate of all workers. However, the disparity in poverty rates between tipped and non-tipped workers was noticeably smaller in states where the tipped minimum wage is equal to the regular minimum wage. Testimony of EPI’s David Cooper

Here’s similar information about the poverty rate for tipped workers in a different format.

The “other NRA” also argues that restaurants would be forced out of business if they had to pay waiters the regular minimum wage. But in Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington, tipped employees are paid the same minimum wage as everyone else—and they keep their tips. As you know, restaurants continue to flourish in all these states. So the NRA argument is just not true.

The other big problem with the tipped minimum wage is that it’s a huge source of wage theft. While restaurants are “required” to make sure that wages and tips together equal at least the minimum wage, when the U.S. Department of Labor reviewed the practices of nearly 9,000 restaurants between 2010 and 2012, the violation rate was over 83 percent. This kind of wage theft is rampant.

Shouldn’t we do away with this deceitful system?

(FYI, here’s a great story about the tipped minimum wage.)