IdeaLog

The subminimum wage for tipped workers is a scam

Posted on February 7, 2024

Most discussions of the subminimum tipped wage are from the point of view of the employer or employee. Let’s consider instead how it works for the customers doing the tipping because, for them, it’s a scam.

Although different kinds of workers receive tips, for the sake of simplicity, this column will focus on tipping by restaurant customers.

When patrons tip a waiter, they believe their money is going to that employee, or at least will be distributed among the workers. But in most states, that’s not the case. Most of that tip is, indirectly, pocketed by the restaurant. Here’s how.

In Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington, tipped employees are paid the same minimum wage as everyone else. The employees keep all of their tips. (This is pretty much true in Hawaii as well.) But the other 42 states have a substantially lower minimum wage for tipped employees than for everyone else. And under these subminimum wage statutes, the employer is legally responsible for ensuring that the tips, added to the subminimum payment by the employer, increase the total wage to more than the regular hourly minimum.

Here are two examples.

Twenty states use the federal minimum wage of $7.25/hour and a subminimum for tipped employees of only $2.13/hour. Let’s say a waiter works a 40-hour week and is therefore paid 40 x $2.13 = $85.20 directly from the restaurant. The restaurant would be responsible for ensuring that the waiter receives at least 40 x $5.12 = $204.80 in tips. Therefore, if the waiter actually receives about $204 in tips for the week, ALL the money that customers paid as tips actually went to the restaurant and not the waiter, because it covered the restaurant’s requirements under law. Legally, the waiter would have gotten the same pay with or without tips. If the waiter gets about $408 in tips, HALF of a customer’s tip actually goes to the restaurant.

Let’s look at a similar situation in a more progressive state. Maryland has raised the minimum wage to $15/hour but its subminimum wage for tipped workers is, incredibly, only $3.63. The waiter who works a 40-hour week is therefore paid 40 x $3.63 = $145.20 directly from the restaurant and the employer is responsible for ensuring the waiter receives at least 40 x $11.37 = $454.80 in tips for the week. Therefore, if the waiter actually gets about $455 in tips, ALL of the money customers paid in tips actually go to the restaurant. If the waiter gets about $910 in tips, HALF of a customer’s tip actually goes to the restaurant.

There aren’t any customers who understand this. They think they are tipping their server, but in whole or in part, they are enriching the employer not the employee. It’s a deceitful system, a scam created by law.

Tipped employees work hard for their pay. They deserve to keep their tips, and the only way to do that is to eliminate the subminimum tipped wage, as seven states have already done and Hawaii has nearly done. Besides, the tipped wage is a huge source of wage theft. But that’s a whole other column entirely.