It’s Not a Tip Credit, It’s a Tip Penalty
And Here’s Why It’s Bad for Employers and Workers—Especially Women
As you may have heard, business interests in Seattle want to include a tip penalty in the city’s minimum-wage proposal, although they like to call it a “tip credit.” A tip penalty would mean that employers get to deduct any tips an employee receives from their hourly wage obligations. While this may sound fine in principle, in practice a tip penalty is an invitation for exploitation by unscrupulous employers and reintroduces the kind of wage uncertainty and inequality the minimum wage is meant to prevent.
We know how a tip penalty works in practice because it is the law of the land in most other states. It was invented by the corporate restaurant industry as a strategy to exempt its workforce from getting a raise with the rest of us. Even though the federal minimum wage for all other workers has been raised five times since 1991, the federal tipped minimum wage has remained frozen at $2.13 an hour for the last 23 years. This amounts to the fastest-growing economic sector in the country successfully saying, “We shouldn’t pay our own workers’ wages—customers should.” What other industry has that amount of influence? And this influence impacts much more than restaurants—the corporate restaurant industry is the major force suppressing the minimum wage, keeping it grossly inadequate for today’s modern economy and all workers.
Tips are not wages. Certainly, customers don’t think of tips that way. When we leave a tip, we tend to think of it as a bonus—an extra thanks for good service and hard work. Even those of us who regularly eat out at restaurants are surprised to learn that, in most other cities and states across the United States, tips actually account for the majority of a restaurant worker’s wages.
Nationally, servers have a median wage of just about $9 an hour including tips, use food stamps at double the rate of the general restaurant workforce, and are three times as likely to live in poverty as any other worker.
In Washington, tipped workers are not that much better off—as recently as 2012, tipped workers (servers, baristas, busers, hairstylists, etc.) reported that their median wage is about $9.50 including tips, and employers report that it is about $11; it is likely somewhere in between. (Those statewide numbers are based on the occupational employment statistics gathered by the US Bureau of Labor Statistics.)
In Seattle and across the country, tips can vary wildly, regardless of quality of service. Wages should be based on hiring commitments of employers and hours worked, not whether a customer is feeling generous that day.
Basing restaurant workers’ income on tips introduces new potential for exploitation—exploitation that’s widespread everywhere else. Federal law requires employers in other states to ensure that tips make up the difference between the lower wage for tipped workers and the regular minimum wage, but the US Department of Labor reports that 80 percent of employers violate that requirement, a practice otherwise known as wage theft.
Meanwhile, discrimination—especially in the form of sexual harassment—is exacerbated when workers rely on tips for the majority of their income. Female servers must put up with whatever a customer might do to them, because the customer provides their income. In fact, the Equal Employment Opportunity Commission targets the restaurant industry as the single largest source of all sexual harassment charges. While 7 percent of American women work in restaurants, 37 percent of all sexual harassment charges filed with the EEOC come from restaurant workers. Gender pay inequity is actually the highest in states with a tip penalty.
And because women constitute the majority of folks living off tips, when tipped workers get left out of a minimum-wage increase, it’s women—many of whom are mothers—who get left out.
Of course, there are servers out there who make great money living off tips. However, the overwhelming majority of servers living in states with a tip penalty simply don’t. Most servers are women like Tiffany Kirk from Houston, a single mother who has missed every single holiday with her daughter, Piper, because she can’t afford to not work. Or Victoria Bruton: She was earning $2.13 and living off tips in Chicago. One year, she had to cancel Christmas for her daughters because she didn’t make enough to afford presents and pay that month’s bills. Twenty years later, both her grown daughters have jobs in the service industry making the same base wage she did more than two decades ago. Karlyn Dozier, from New Orleans, routinely got passed over for promotions at Red Lobster despite outranking others in seniority. She recently had to move back in with her mom so she can take care of herself and her son. There are millions more stories like these from women across the country. They’ll tell you they routinely get $0 paychecks, have more than one job, spend more in gas money than they make in a day, and are no strangers to standing in line at churches to get food for their families. These women represent the majority experience of what it’s like to live in a state or city with a tip penalty.
Rolling back wages is not just bad for workers, it’s problematic for restaurant owners as well. To start, it’s not fair to other industries that don’t employ tipped workers. It’s not even good for Seattle restaurants—if a tip penalty were introduced, they would be the only restaurants in Washington State subject to calculating pay for each hour a tipped employee works to ensure no one falls below the minimum wage, a heavy liability. Washington is one of seven states that have already abolished the tip penalty. (Five of those seven states have faster industry growth rates than the restaurant industry nationally.) In fact, restaurant and bar employment has expanded by 21 percent since Washington first voted to raise the minimum wage and index it to the cost of living. The national organization Small Business Majority reports that small businesses overwhelmingly support raising the minimum wage, and a majority already pay above it.
The momentum to raise the regular minimum wage in other states includes campaigns to raise and even abolish the tipped minimum wage. There are ballot initiatives and legislation moving forward in four more states to eliminate the tipped minimum wage—why would Seattle move backward on this issue while the rest of the country is progressing?
Seattle can and should pride itself on being a leader in our country and creating a true, livable wage for the city’s workforce. This will support working families in Seattle, lift the city’s economy, and attract and grow responsible and sustainable businesses in the area. Passing a $15 living wage is more than the right thing to do; it will set a powerful example for other cities as the fight against income inequality and for a living wage takes a local turn. Introducing a tip penalty would undermine the intent and impact of a living wage. It’s vital that, in taking a huge step forward to raise the minimum wage in Seattle, the city not also take a dangerous and destructive step backward.