PI Original Ellyn Fortino Thursday July 10th, 2014, 3:20pm

Report: Give Tipped Workers The Regular Minimum Wage

Millions of tipped workers in the United States who face high poverty rates and other challenges would fare better if they earned the same government-mandated hourly minimum wage as non-tipped employees, according to a new Economic Policy Institute report. Progress Illinois takes a look at the report's findings and recommendations.

Millions of tipped workers in the United States who face high poverty rates and other challenges would fare better if they earned the same government-mandated hourly base wage as non-tipped employees. 

That's the main argument of a new report from the Washington, D.C.-based Economic Policy Institute (EPI), which makes the case for eliminating the tipped minimum wage and providing tipped workers with "the same basic protection afforded to all other workers."

The regular federal minimum wage, which currently stands at $7.25 an hour, has not seen a bump since 2009. And the federal wage floor for tipped workers such as waiters and bartenders has been frozen at $2.13 an hour for 23 years. Over this time period of more than two decades, "inflation has lowered the purchasing power of the federal tipped minimum," the "Twenty-Three Years and Still Waiting for Change" report reads.

Tipped workers, according to the report, are "subject to low pay, low levels of total family income, and a greater likelihood of being in poverty. It is also the case that tipped workers are much less likely to have workplace benefits."

Under federal law, employers have to pay tipped workers an hourly wage of at least $2.13. Employers can claim a "tip credit" and count workers' income from tips toward the remaining balance of the regular minimum wage. Essentially, "tips are in part a wage subsidy provided by customers to employers of tipped workers, as they are paying part of the employer-wage bill," explained Sylvia Allegretto, one of the report's co-authors and an EPI research associate. Allegretto is also an economist at the Institute for Research on Labor and Employment at the University of California, Berkeley.

The tip credit claimed by employers cannot be greater than the amount of tips that an employee actually receives. Under current law, if a workers' tips plus the subminimum wage paid by the employer do not add up to at least the regular minimum wage in a work week, the employer has to make up the difference.

But that system can be problematic, said David Cooper, the report's other co-author and an EPI economic analyst.

"If a waitress wants to make sure she's getting at least the minimum wage, on her own she has to carefully track all of the hours she works in a given week, all the tips she receives both cash and on credit cards, and then calculate whether her base wage plus tips is equal to at least the minimum wage," he said. "If not, she would have to go to her employer — this is the person who sets her schedule, who determines whether she'll get the most lucrative shifts, who really determines whether she'll keep her job — and tell that person that they owe her more money. And that's an awfully difficult position to put someone in."

Wage violations are also not uncommon in the restaurant industry, Cooper noted, pointing to data from a 2010 to 2012 compliance investigation of nearly 9,000 full-service restaurants by the U.S. Department of Labor’s Wage and Hour Division. Among the violations that surfaced, federal officials recovered almost $5.5 million in back wages stemming from 1,170 tip credit infractions.

Nineteen U.S. states provide no more than the federal $2.13 tipped hourly wage. They also use the maximum employer tip credit of $5.12.

Thirty-one states and the District of Columbia have tipped minimum wages greater than $2.13 an hour. Twenty-five of those states, including Illinois, and the District of Columbia have tipped minimum wages greater than $2.13 an hour but less than the regular minimum wage. The base hourly wage for tipped employees in Illinois is $4.95, while the regular minimum wage is $8.25. The maximum employer tip credit in Illinois is $3.30.

The other seven states provide "equal treatment" to tipped workers, meaning the tipped wage floor is the same as the regular minimum wage. Those states include Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington. Click through to find a map of tipped minimum wage levels by state.

"It's important to note that the restaurant industry is booming in states that have low tipped wages and also with considerably higher tipped wages," Allegretto said. "It's clear (with) this natural experiment that's taking place across the country that the viability of the restaurant industry does not hinge on the $2.13 an hour subminimum wage, otherwise we wouldn't expect that there would be any full-service restaurants in states that do not allow for a subminimum wage — of course that simply isn't true."


Of the roughly 4.3 million tipped workers in the United States, 66.6 percent are women. And about 2.5 million of the nation's tipped workers are waiters and bartenders, according to the report. Other tipped occupations include casino workers and hair stylists, among others.

There are approximately 1.4 million tipped workers who make the federal $2.13 subminimum wage, while 2.1 million earn between $2.13 and the regular minimum wage. 

Tipped workers tend to be younger than the overall U.S. workforce, but the majority are at least 25 years old. About 13 percent of tipped workers are teenagers, the report's findings show. 

Also, one in four tipped workers are parents. Ten percent of tipped workers are single parents, compared with less than 8 percent in the overall workforce. About 14 percent of female tipped workers are single parents. 

For all U.S. workers, the median wage is $16.48. By comparison, tipped workers have a national median wage, including tips, of $10.22. For bartenders and waiters, the median wage is $10.11. A typical female tipped worker makes $10.07 an hour, which is slightly less than the median wage of $10.63 earned by their male counterparts. 

The total hourly pay among waiters, waitresses and bartenders in "equal treatment" states is 20 percent higher than in states using the federal minimum.

"This directly contradicts claims that if we raise the tipped minimum wage, tipped workers would be worse off because people would just tip less (and) their total pay would go down," Cooper stressed. 

Overall, the nation's tipped workers face higher poverty rates than the overall workforce, the report showed. Nationally, the poverty rate is 6.5 percent among non-tipped workers and 12.8 percent for tipped workers. Waiters and bartenders experience an even higher poverty rate of 14.9 percent. "Equal treatment" states have "significantly lower" tipped worker poverty rates than states that pay the federal $2.13 minimum, Cooper said. 

The poverty rate for waiters, waitresses, and bartenders in the lowest tipped-wage states is 18 percent, while it is only 10.2 percent in "equal treatment" states.

Additionally, workers who depend on tips often do not have the same access to paid leave, health insurance and retirement benefits as other workers, according to the report.

"Tipped workers rarely receive paid sick leave," Cooper noted. "If you think about that, that should be alarming. In most states, the person who is serving you food in a restaurant doesn't get paid time off when they're sick to stay home and get healthy. And because of the bulk of their wages are dependent on them working the most lucrative shifts, there's actually greater incentive for them to work sick on the days when they will interact with the most customers, and then potentially take time off when they would interact with fewer customers — if they can afford to take time off at all." 

As a result of low wages, lack of benefits and high poverty rates, many tipped workers rely on some form of public assistance in order to make ends meet. Forty-six percent of tipped workers depend on public aid, compared with 35.5 percent of non-tipped workers.

Allegretto made a point to stress that most tipped workers do not work in upscale restaurants. Many of the hours worked by tipped employees are during slow periods, she added, and any change in work schedule could also "decrease earnings considerably."

"You have to ask yourself, how much in tips does a worker have to make to buy their own healthcare, to buy their own vacation, to buy their own sick days, to buy their own retirement," she asked. "These are a few of the reasons why a base pay that a worker can count on provided by employers is so important." 

Federal Legislation

Pending federal legislation backed by Democrats would bump up the federal tipped minimum wage. The Fair Minimum Wage Act, S. 460 and H.R. 1010, looks to increase the regular federal minimum wage to $10.10, with future wage increases tied to inflation. The base wage for tipped workers would be 70 percent of the overall minimum wage. U.S. Sen. Tom Harkin (D-Iowa) and U.S. Rep. George Miller (D-CA,11) jointly introduced the measure back in March of 2013 in their respective chambers.

A boost in the tipped minimum under the Harkin-Miller bill would certainly help workers, Cooper said, but "given how much better tipped workers seem to be doing in states where they get the regular minimum wage, we think it's time to get rid of the tip minimum wage altogether and have tipped workers be paid the regular minimum wage as they would in virtually any other job."

Industry advocates, however, will maintain that raising or getting rid of the tipped minimum wage altogether will adversely affect businesses and kill jobs, Cooper explained.

"The data don't support this claim," he stressed, noting that the leisure and hospitality sector since 1995 has grown faster in "equal treatment" states than those with a subminimum tipped wage.

"And in fact, the restaurant industry itself forecasts stronger growth in states where tipped workers get the regular minimum wage than in the states where they get lower tipped minimum wages," he added.

As aforementioned, the hourly wage of a typical worker who depends on tips is $10.22, higher than the proposed $10.10 federal minimum wage hike under the Harkin-Miller bill.

Even so, Cooper said giving tipped workers the regular minimum wage means providing them "a wage they can expect week to week in their paycheck, as opposed to having to rely on really unreliable and unpredictable income levels each week." 

Allegretto also pointed out that the nationwide median wage for tipped workers includes data from states that have higher tipped minimum wages, such as Washington state's $9.32 an hour. Also, she noted that the median hourly wage for waitresses and female bartenders in states with the federal $2.13 tipped minimum wage is just $9.14, including tips. 

"Nine dollars an hour is a low-wage job, and again with usually few to no benefits," Allegretto stressed.

Local Measures

State legislation to bump Illinois' minimum wage to $10.65 over three years stalled in the spring session. State lawmakers, however, could take up the issue during the fall veto session after the November General Election. A non-binding referendum about hiking the state's regular hourly wage floor to $10 will appear on the November ballot.

As it stands, the pending state minimum wage bill, SB 68, would not change the law for tipped workers. After the bill passed through a Senate committee in March, the measure's sponsor State Sen. Kimberly Lightford (D-Maywood) said more discussion was still needed around the minimum wage for tipped workers and teens.

In Chicago, meanwhile, an ordinance based on the recommendation of Mayor Rahm Emanuel's Minimum Wage Working Group is expected to be introduced in the council this month that would lift the city's hourly wage floor to $13 by 2018. Under the plan, the tipped minimum wage would increase by $1 to $5.95 over two years. Future wage increases for both tipped and regular hourly minimum wage workers would be adjusted to keep pace with inflation.

A separate Chicago ordinance introduced in May, and co-sponsored by 21 aldermen, would hike the city's minimum wage to $15 by 2018. The hourly minimum wage for tipped workers would be 70 percent of the overall minimum wage under that plan.


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