25 Years Without a Raise

The tipped minimum wage shortchanges workers, and after 25 years, it's time for federal lawmakers to raise it.

U.S. News & World Report

25 Years Without a Raise

A tip left on a restaurant guest check. Shot with shallow depth of field.

Way too little to live on.(Getty Images)

April 1 marks 25 years since tipped workers last got a raise. The 4.3 million American workers who receive tips – mostly servers and bartenders – are excluded from federal minimum wage of $7.25, and instead earn as little as $2.13 an hour. This so-called tipped minimum wage has been frozen at $2.13 since 1991.

Trying to live on the minimum wage is a nearly impossible order, but imagine trying to do so when your pay falls short of the regular minimum wage, even once tips are included. That's the unfortunate reality facing many tipped workers, because although employers are legally required to make up the difference, experts believe this rarely happens.

Even though a waitress whose tips come up short is entitled to ask her boss for the difference for that week, doing so is risky. She might lose the chance to get good shifts in the future. Worse, her boss may fire her for being "too expensive" or difficult. So when paychecks come up short, many workers choose not to take the risk.

These lost wages add up. Every year, state and federal authorities uncover thousands of violations that cost workers millions of dollars in lost wages. In just the small share of full-service restaurants inspected between 2010 and 2012, employers' tip infractions resulted in $5.5 million in back wages. The overwhelming majority of infractions go unpunished.

Adding to the pain of low pay is the uncertainty of relying on tips. A waiter may work equally hard night after night, yet receive wildly different compensation based on factors beyond his control: how many tables were in his section, how well the kitchen prepared the food or whether he had generous patrons.

What's more, the tipping system is inherently unfair and discriminatory: Tips differ markedly by race, gender and physical attractiveness, regardless of the quality of the service. It's a system that damages morale, encourages sexual harassment and leaves workers unable to budget and plan for their future.

As a consequence of low wages and unpredictable pay, tipped workers are nearly twice as likely – and servers almost three times as likely – to live in poverty as other workers. In fact, tipped workers' median wage, including tips, is nearly 40 percent below the national average.

The vast majority of tipped workers aren't teenagers working after-school shifts. They are breadwinners who rely on their wages to support their families. More than a quarter are raising children, and nearly 90 percent are age 20 or older.

When restaurants shortchange their servers, it does more than hurt working families – it also costs American taxpayers. To make ends meet, many tipped workers must turn to public assistance programs like food stamps (SNAP) or Medicaid. Fully half of full-service restaurant workers rely on public benefits to get by, at a taxpayer price tag of $9.4 billion per year.

It doesn't have to be this way. In the seven states that already require that tipped workers be paid the full minimum wage, tipped workers make significantly higher wages and experience much lower poverty rates. And research dispels concerns that these higher wages harm workers by leading to job loss.

The next step is already in lawmakers' hands: A federal minimum-wage bill sponsored by Sen. Patty Murray, D-Wash., and Rep. Bobby Scott, D-Va., would phase out the separate tipped wage nationwide, while raising the minimum wage to $12 over a multi-year period. But the bill has been stalled in the Senate.

Not willing to wait for lawmakers to act, several restaurant-industry visionaries are abolishing tipping in their establishments – and with positive outcomes. Amanda Cohen, the owner of Dirt Candy in New York City, found that morale at her restaurant significantly improved after she guaranteed a steady and fair wage for workers. Jen Pillait, the owner of Zazie in San Francisco, also observed that servers' attitudes greatly improved, and that profit sharing and meaningful salaries made the restaurant a much better place for everyone to work. These are just two of many examples.

Eliminating tipping entails major changes for a restaurant, to be sure. Owners face higher payroll taxes and overtime costs, and may need to make changes such as shifting staffing schedules. But at the same time, they benefit from increased productivity, lower rates of costly employee turnover and a larger customer base as service quality improves.

All workers deserve a fair wage for their work and tipping comes up short. After 25 years of $2.13, tipped workers are long overdue for a raise. Federal lawmakers should pass the Murray-Scott bill, raising wages for low-paid workers nationwide and phasing out the separate standard for tipped workers. Meanwhile, conscientious customers should support the pioneer businesses that are choosing to invest in their workers' economic security.