Money

Minimum wage fight turns to tips

July 10, 2014 at 5:44 PM ET

Image:
Joe Vitti / AP
Waiter Thomas Ievoli talks to customers Adam Moschell, left, Ethan Hartman and Hannah Leeper, all from Indianapolis, at the Old Pointe Tavern in this 2011 file photo. The tipped minimum wage starts at $2.13 per hour, and advocates say that needs to increase.

As the national debate continues over whether to raise the federal minimum wage of $7.25 an hour, there are more than a million workers making ends meet on the tipped minimum wage, which starts as low as $2.13 an hour.

The law requires employers to make up the difference if bad tippers keep a worker from reaching the regular minimum wage. Yet, out in the real world that doesn't always happen, according to a report from Economic Policy Institute released Thursday.

Sign up for top Business news direct to your inbox.

"We think it's time to get rid of the tipped minimum wage altogether," said David Cooper, an economic analyst at the Washington think tank devoted to helping low- and middle- income households.

"Making these workers go to their bosses and saying: 'you owe me money' at the end of the shift … I don't think that happens very often," said the report's co-author, Sylvia Allegretto, who is also the co-director of the Center on Wage and Employment Dynamics at the University of California, Berkeley. "Even for employers who would like to do the right thing, it's really hard," said Allegretto, who worked as a waitress for seven years.

Wages and the American dream

Nationally, tipped workers have a median hourly wage, including tips, of $10.22, according to the EPI analysis of Bureau of Labor Statistics survey. That rate drops to $9.80 an hour in the 19 states where the $2.13 tipped minimum rate is allowed. Other states have a higher tipped minimum wage or only use a regular minimum wage.

The EPI report estimates that 1.4 million people are getting the $2.13 tipped minimum wage plus tips, and an additional 2.1 million are getting between $2.13 and $7.25, plus tips.

Replacing the tipped minimum wage with a regular minimum wage would likely mean a raise for some of the workers, in addition to the stability of knowing what they'll get paid week-to-week, Allegretto said.

The push to raise the federal minimum wage is focused on a plan by Sen. Tom Harkin, D-Iowa, and Rep. George Miller, D-Calif., which would increase the regular minimum wage from $7.25 to $10.10 an hour by 2016. The Congressional Budget Office in February estimated that would translate into raises for 16.5 million workers, but would also hurt businesses and result in 500,000 job losses. That plan would also gradually raise the tipped minimum wage to 70 percent of the regular minimum wage, instead of the current 29 percent.

Workers who rely mainly on tips are more likely to need government assistance, according to the EPI report. Although 46 percent of tipped workers and their families rely on public benefits, only 35.5 percent of non-tipped workers and their families need those programs. EPI says public assistance was never meant to be "a permanent wage subsidy or part of the business strategy for low-wage employers."

Waiters and waitresses make up the biggest share of the population working for tips, followed by hairdressers, bartenders, restaurant hosts or hostesses, taxi drivers and chauffeurs, and cafeteria attendants. By demographics, 67 percent of tipped workers are female, the majority are older than 25 and almost 30 percent are at least 40 years old. While 37 percent have no more than a high school education, more than half have at least some college experience.

The National Restaurant Association on Thursday disputed many of the findings in the EPI report.

"To say there is a 'subminimum wage' is categorically untrue. Tips are wages, that employers and employees pay taxes on. No one is making $2.13 an hour. Every tipped worker is guaranteed at least the minimum wage of their state, more than half of which have increased both the tipped wage and minimum wage to above federal levels," Scott DeFife, the National Restaurant Association's executive vice president of policy and government affairs, said in a statement to CNBC.

"Servers are often the highest paid workers in restaurants. Our data shows median hourly earnings range from $16 for entry-level servers to $22 for more experienced servers. If an employee's tips plus their cash wages don't add up to the federal minimum wage, their employer is responsible for making them whole under the law," he said.

TOP