Financial Disparities Between Tipped and Full-Wage Workers Larger Than Ever
A new study shows that the wage gap between tipped and non-tipped workers is the widest it's ever been in American history.
1966 amendments to the Fair Labor Standards Act (FLSA) created protections to hotel, restaurant and other service employees, but also created a sub-wage for tipped workers with the expectation that an employee's tips, when added to the sub-wage, would match or exceed the minimum wage. In effect, the tipped wage created a subsidy for service employers, exempting organizations that used tipped labor from paying full wages.
According to a new study from the Economic Policy Institute (EPI), tipped laborers face much more stringent economic outcomes than their full-wage peers. According to the study, the poverty rate among non-tipped workers is 6.5 percent - but among tipped workers, it rests at at 12.8 percent. More than half of the people represented by this overwhelmingly female demographic are more likely to rely on public assistance as a permanent wage subsidy. The authors of the EPI study note that public assistance was never meant to become "part of the business strategy for low-wage employers." They also found that the tipped laborer workforce is currently the largest it has ever been.
In their own research focused on tipped workers, the Restaurant Opportunities Center (ROC) found that one in three tipped workers are parents, and of that number one in six rely on free and reduced lunch programs to feed their children. Poverty rates dramatically rise to 25% among tipped workers who are people of color. However, overall poverty decreases in states with higher minimum wage rates.
The Department of Labor recognizes tipped employees as those who "customarily and regularly" receive $30 or more per month in tips. According to the PolicyMatters Journal, that breaks down to $1.50 a day in tips each month. Employers are required to pay tipped workers $2.13 per hour. An employer can claim a "tip credit" up to $5.12, the difference between the direct wage they're required to pay and the $7.25 federal minimum wage. According to the Department of Labor, an employer should make up the difference if a worker's tips do not cover the difference.
The $2.13 tipped minimum wage has not changed since 1991, when it made up half of the overall minimum wage floor of $4.25. Today, the tipped minimum wage makes up just 29 percent of the regular federal minimum wage of $7.25. The Economic Policy Institute found that the real, inflation-adjusted value of the tipped wage and the federal minimum wage are both lower today than they were in 1966.
Some states and local jurisdictions are moving to raise their own minimum wage. A few states, like Minnesota, Delaware, and West Virginia, are also working to include tipped wage workers in those increases. However, organizations like the National Restaurant Association, the most prominent restaurant industry lobby, have succeeded in defeating many local and federal efforts to raise the tipped minimum wage.
Media Resources: The American Prospect 7/11/14; ROC United 2013; Al Jazeera America 1/2/14; Department of Labor; PolicyMatters Journal 3/3/13