Tipped workers have been getting short-changed for years. At least that's what the gap between the federally mandated regular minimum wage and federally mandated tipped minimum wage would suggest.
When the tip credit, as that difference is often called, was created in 1966, it split hotel, restaurant and other service industry salaries up so part was paid by their employers and another part was paid by their customers. The legislation was intended to protect service industry workers who had previously been unprotected under the Fair Labor Standards Act (FLSA). And the split was originally 50-50 — meaning employers and customers shared the cost of each tipped worker's minimum salary.
But the burden is increasingly falling on America's restaurant goers and other service industry customers. "Today this two-tiered wage system continues to exist, yet the subsidy provided by customers in restaurants, salons, casinos and other businesses that employ tipped workers is larger than it has ever been," a new report (pdf) by the Economic Policy Institute says.
The tip credit has surged from fewer than $3 in the late 1980s to more than $5 today, largely because the tipped minimum wage hasn't increased in 23 years.
The stall likely has a lot to do with the lack of attention the tipped minimum wage, or subminimum wage, gets in the U.S, according to the report.
The regular minimum wage gets most, if not all, of the attention today, but there's reason to believe the public discussion is actually missing the mark. Income inequality, for one, is inextricably tied to the meager salaries America's tipped workers are living on. Tipped workers' wages in the U.S. predominantly rank in the bottom 25th percentile, even when adjusting for tips. And the number of tipped workers is on the rise. The full-service restaurant industry, for instance, has seen employment grow by over 85 percent since 1990, which far outpaces overall private-sector employment growth of 24 percent since 1990.
"Today more than one in 10 U.S. workers is employed in the leisure and hospitality sector," the report says.
Food servers and bartenders make up roughly half of them, but tipped workers span a number of industries.
The good news is that while the federally mandated minimum remains at $2.16 for tipped workers, many states have implemented their own, higher tipped salary floors.
The bad news is that they vary significantly — some states, like Delaware, have a comparatively low one ($2.23); some, like Hawaii, have a comparatively high one ($7.00); and some don't allow a tipped minimum wage at all, and instead require that the same minimum wage be paid to all workers.
17 states follow the federal recommendation for both tipped and non-tipped workers, $2.13 and $7.25, respectively.
The difference between tipped and non-tipped worker minimum wages
Toggle over for each state
The idea was that tipped workers' two salaries — the one paid by employers and the one paid by customers — was meant to equal, more or less, the single salaries earned by non-tipped workers. The problem is that it does not. The median tipped worker earns considerably less than the median U.S. worker, even when accounting for tips — $10.22 compared to $16.48, respectively, according to the institute.
What's more, they're significantly less likely to enjoy any kind of employment-related benefits.
There's evidence that raising the tipped minimum wage would help boost the overall incomes of tipped workers in America. Tipped workers in equal treatment states, for example, earn nearly 15 percent more than their counterparts in low tipped minimum states. The institute's recommendation, however, is to abandon the subminimum wage.
It is certainly time to raise both wage floors, but given the dramatic differences in living standards for tipped versus non-tipped workers, we question whether there should be a two-tiered wage system at all. Tipped workers in the seven “equal treatment” states appear to be noticeably better off than their counterparts in the rest of the country, receiving higher total wages and experiencing poverty at significantly lower rates.