Minimum wage for tipped employees

-wage increases, effectively cancelling a 2006 referendum that linked the minimum wage to the CPI.144 In Arizona, 71 percent of voters supported a 2004 proposal indexing their state minimum wage, but in 2012 legislators attempted to abolish this requirement. This time, despite the vocal support of the Restaurant Association, legislators were forced to relent when the move generated broad popular criticism.145

Minimum wage for tipped employees

The failure of minimum wages to keep pace with inflation has had particularly stark consequences for the 3.3 million Americans who work as waiters, waitresses, bartenders, and bussers. In 1966, the federal government established a subminimum wage for tipped employees, on the theory that tips would bring them up to the level of the standard minimum wage. At the time, the tipped wage was set at 50 percent of the regular minimum. However, the tipped wage has been frozen at $2.13 per hour for more than 20 years, and now amounts to just 29.4 percent of the regular minimum wage.

The country’s tipped employees are overwhelmingly female, and nearly half are 30 years old or older.146 How these employees are treated varies by state. In 18 states, tipped workers are entitled only to the federal subminimum wage of $2.13 per hour. Twenty-five states have established a tipped wage below the regular minimum wage, but higher than the federal subminimum. Only seven states mandate that tipped employees be paid the regular minimum wage.

The economic impact of subminimum wages is dramatic for these employees and their families. The poverty rate for waiters and waitresses—who comprise the bulk of all tipped employees—is 250 percent higher than that of the workforce as a whole. Furthermore, the share of waitstaff in poverty is directly related to state wage laws. In states where waitstaff receive the full minimum wage, 13.6 percent are poor; in states with a tipped wage set somewhere between $2.13 and the federal minimum, waitstaff poverty is 16.2 percent; and in states that apply the federal subminimum wage of $2.13, waitstaff poverty rises to 19.4 percent.147

Furthermore, even the subminimum wage for tipped employees is often extremely difficult to enforce. By law, if the combination of an employee’s tips and wages do not add up to the regular minimum wage, the employer must make up the difference. However, responsibility for monitoring compliance typically rests with employees, who must record exactly how much they receive in tips during a workweek and how many hours they work, and then petition their employer to make up the difference if they are short.148 In the normal disorder of everyday life, most employees are unlikely to maintain records that would stand up to legal challenge. This is all the more true for non-native English speakers and those with limited education. Even for those who do keep exact records, however, this simply enables them to make a request of their employers, who regularly reject such claims. Enforcing workers’ rights even with proper documentation becomes a laborious, costly, and uncertain process.149 For this reason, a 2008 survey suggests that as many as 30 percent of tipped employees do not receive even the subminimum wage from their employer.150

Yet corporate lobbies routinely resist attempts to increase the tipped minimum wage or strengthen employees’ ability to effectively enforce their rights under law. In the past two years, two states sought to lower the tipped minimum wage, two others worked to redefine “tips” in ways that weaken employees’ right to keep what they earn, and one state, while insisting that tips count as wages for income tax purposes, attempted to declare that they must not be counted for purposes of calculating workers’ compensation benefits for waitstaff who are injured on the job.

Legislators in both Arizona and Florida sought to lower their states’ tipped minimum wage. Both states maintain tipped minimum-wage standards below the regular minimum wage but higher than the federal tipped rate; the objective of legislators in both cases was to push tipped wages closer to the federal tipped rate. Neither state presented evidence that the current wage levels create economic harm. On the contrary, the National Restaurant Association identified Florida as having the third fastest-growing restaurant industry in the country, with record sales projected for 2012.151 Furthermore, legislators in both states acted in direct contradiction to the will of voters, who had established state tipped minimum wages by popular referendum.

In 2006, 65 percent of Arizonans voted to raise their state minimum wage to $6.75, with future increases based on the CPI.152 Since pre-existing law set the tipped rate at $3 per hour below the regular minimum wage, the 2006 vote set a floor of $3.75 for tipped wages. Yet in 2012, House Majority Leader and ALEC member Rep. Steve Court introduced a bill that would have cut that rate by one-third, to $2.53—in effect transferring $1.22 of hourly earnings from employees to owners.153 Ultimately the bill proved too unpopular and was withdrawn.154

In Florida, the Restaurant and Lodging Association—whose national parent organization is an active ALEC member—worked with legislative allies to introduce a bill that would have effectively cut the state’s tipped minimum wage from $4.65 to $2.13.155 This would appear to have been a violation of the state constitution, which was amended in 2004 when voters approved by 72 percent to 28 percent a clause setting the state’s tipped minimum wage at $3.02 less than the state regular minimum wage, which itself is indexed to inflation.156 Nevertheless, the Restaurant Association protested that the state’s $4.65 tipped wage was “very unfair,” insisting that “it’s just going to be a matter of time before the back of this industry breaks. Minimum wage is killing them.”157 Thus, with the avid support of both the Florida Chamber of Commerce and Associated Industries of Florida, the Restaurant Association set out to contravene both the voters’ will and the state constitution.158

While neither state’s bill was enacted, they both provide a measure of how far employer associations may go to cut employee wages, and perhaps serve as a warning of future legislative offenses that should be anticipated.

A different strategy was attempted in Wyoming and Maine, where legislators sought to revise the legal definition of wages in order to divert tip income from employees to employers. In Wyoming, a bill co-sponsored by a group of ALEC-affiliated legislators and backed by the Restaurant Association would have given employers the right to force employees to pool their tips.159 While employees may have previously pooled tips, this was done voluntarily. In many restaurants, bussers, who are legally considered tipped employees, in fact receive little tip income.160 In such cases, employers are required to pay them the regular minimum wage. By forcing more highly tipped wait staff to pool earnings, employers may avoid this obligation—essentially cutting the take-home pay of wait staff by making them pay the bussers’ wages, with employers pocketing the difference as increased profits.

In 2011, Maine legislators adopted a new law declaring that “service charges” do not legally constitute tips, and that they are therefore not the property of wait staff and may be taken by the employer.161 The statute—sponsored by an ALEC task force member and supported by the Restaurant Association—does not require restaurants to notify customers that the “service charge” does not go to servers; many patrons likely believe this charge constitutes the gratuity, and therefore provide little if any additional tip.162 As in Wyoming, then, the Maine law constitutes a direct transfer of income from employees to owners, accomplished through the latter’s political power.

Finally, Montana’s legislature passed a law mandating that tips could not be counted as wages for purposes of workers’ compensation claims. This law—supported by the Montana Chamber of Commerce and celebrated as “historic” by the Restaurant Association but ultimately vetoed by the state’s Democratic governor—would have thus allowed employers to pay subminimum wages on the grounds that tips constitute wages; then, if waitstaff are injured, it would have prevented customary tip income from being counted when calculating workers’ compensation benefits.163 The bill would additionally have made it nearly impossible for tipped employees to qualify for permanent, partial disability benefits unless they suffered a particularly severe injury. Legislators had earlier adopted a more far-reaching bill that declared minimum-wage workers ineligible for permanent, partial disability payments if they suffered only minor injuries; the bill reasons that they would still be able to find minimum-wage employment and thus could not have suffered any wage loss from the injuries.164 By declaring that tips could not be counted in workers’ compensation calculations, the new law would have designated all tipped employees as minimum-wage workers and thus ineligible for permanent, partial compensation for minor workplace injuries.