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Hospitality Wage Growth Reignites Tipped Minimum Wage Battle

July 29, 2022, 9:30 AM

The lingering effects of the pandemic continue to drive up wages in the restaurant industry, giving new energy to state and local efforts to abolish the lower tipped minimum wage.

Pandemic-related health risks, scheduling unpredictability, and the harassment public-facing workers faced during the pandemic made the industry less attractive, which is why restaurant employers are still struggling to find workers even as wages continue to rise, economists and worker advocates say.

Federal law allows businesses to pay their workers as little as $2.13 an hour if they earn more than $30 a month in tips. But the share of hourly food service workers making less than $7 an hour—just below the full federal minimum wage of $7.25—has declined rapidly since 2016, and even further in 2022. Just 2% of hourly food service workers make less than $7 an hour so far in 2022, according to data collected by the job-search website Glassdoor.

“We do continue to see wage growth well above what we had seen prior to the pandemic, especially in front-line industries, like leisure and hospitality and transportation and warehousing,” said Daniel Zhao, senior economist at Glassdoor. “If you’re offering $2 plus tips right now, you’re gonna have a hard time finding workers.”

The labor market squeeze is refueling efforts from advocates who say that removing the lower tipped minimum wage will lift workers of color economically and allow the restaurant industry to attract enough staff to fully recover from the pandemic. But some workers, economists, and industry groups believe doing so would have the opposite effect, resulting in increased food prices or leading to scheduling cuts, job losses, and even restaurant closures.

“We’ve done so much work to expose that the subminimum wage is a direct legacy of slavery and a source of incredible amounts of poverty and the highest rates of sexual harassment of any industry in the U.S. for a workforce that is overwhelmingly women and disproportionately women of color,” said Saru Jayaraman, president of One Fair Wage, which advocates for abolishing the lower tipped minimum wage.

“We need policy that’s going to signal to millions of workers to come back, it’s worth working in restaurants,” she said.

‘Digging Our Graves’

Groups opposed to changes in the federal tipped minimum wage say scrapping the lower rate ultimately results in less take-home pay for tip-earning workers. Cornell University School of Hotel Administration professor Michael Lynn, for example, found a correlation between tipped workers with higher wages and lower tip percentages.

“Before Covid, this policy was a slap in our face. Now it is literally digging our graves,” said Joshua Chaisson, a server in Maine who supports raising the regular minimum wage but not the tipped minimum wage.

“It’s not so easy to just say, you know, take an increase in price like you might have before because prices are already going up,” said Michael Saltsman, managing director of the Employment Policies Institute, a conservative think tank. When the base rate employers must pay is tripled, “that restaurant basically immediately becomes unprofitable, unless they can find a way to offset that through higher prices,” he said.

But William Spriggs, an economics professor at Howard University and the AFL-CIO’s chief economist, says these fears are nothing more than industry myths.

“In other countries, this is not how it works. Many American tourists are quite shocked when they go to Europe and they notice that no one even tips. The waiters don’t expect a tip,” Spriggs said.

Surcharge Model

Some US restaurants have already made the decision to pay their tip-earning staff more and make tipping optional.

Adam Orman, the owner of Austin, Texas-based restaurant L’Oca d’Oro, told Bloomberg Law that his starting pay for both front and back-end workers is $15 an hour, with tips shared equally among the employees working that shift.

Once he ensured that everyone was at least making the federal minimum wage, Orman said he began brainstorming ways “to bridge the gap between the kitchen and the servers.” Including a 20% service charge to customer’s bills did the trick.

“By guaranteeing the service charge, where there would normally be tips, we’re not really spending anymore than we would be if we were just bringing in the tips and letting the server walk out with those,” Orman said. “We’re just the ones controlling the tip out and controlling where that 20% goes.”

But some servers like Chaisson say the surcharge model creates concerns about tip theft because it’s up to the restaurant to pay out the service fee.

“It’s really important to note that service charges belong to the house,” he said. “They are not the property of workers. As a result, the business owner can really distribute those funds in any way that they see fit.”

Local Movement

The last time Congress raised the tipped minimum wage was in April 1991. But the political stalemate in the Senate makes it unlikely the federal government will make changes anytime soon. Instead, those pushing to abolish the tipped wage are seeing success at the state and local levels.

Seven states already require employers to pay tipped workers the full state minimum wage, with similar legislation currently passing through the New York and Massachusetts legislatures. A Michigan state court recently found unconstitutional the state legislature’s 2018 decision to reverse giving tipped workers the minimum wage, although an appeal is expected.

One Fair Wage announced earlier this year it was putting $25 million into a campaign to get 25 states to abolish the subminimum tipped wage in the next four years.

The group this week submitted 610,000 signatures to put a measure on Michigan’s 2024 ballot to raise the state’s minimum to $15 and end all lower wage rates for tipped workers, workers with disabilities, and youth.

Ballot initiatives in the District of Columbia and Portland, Maine, this year will allow voters to decide whether tipped workers in those cities should earn the full minimum wage.

Federal Stalemate

Multiple attempts to abolish the tipped minimum wage at the federal level have failed.

The Fair Labor Standards Act created a federal minimum wage in 1938, also establishing a federal subminimum wage to distinguish between “regular workers” and disabled or service-based workers. Amendments to the FLSA in 1966 extended federal protections to previously excluded service industries, but maintained the subminimum wage for tipped workers as long as they ultimately made the state’s minimum wage in tips.

The Raise the Wage Act from House Education and Labor Committee Chair Bobby Scott (D-Va.) and Senate Budget Committee Chair Bernie Sanders (I-Vt.) would have eliminated the subminimum wage when it passed the House in 2019, but Democrats couldn’t get the full support of even their own party to back the measure in the Senate.

Sanders also added a similar provision to President Joe Biden’s American Rescue Plan last year, but the Senate parliamentarian stripped the provision for violating the rules of the budget reconciliation process.

“We have not raised the minimum wage in this country in decades,” Sanders told Bloomberg Law July 25. “I’m sure that there are waiters and waitresses who do very well. I’m sure that there are waiters and waitresses who do terribly. We need to raise that tipped minimum wage.”

Rep. Jahana Hayes (D-Conn.) July 19 introduced the latest legislation to require employers to pay servers the full minimum wage with tips on top. So far there’s been no activity on the bill.

—With assistance from Paige Smith.

To contact the reporters on this story: Jalen Brown in Washington at jbrown@bloombergindustry.com; Rebecca Rainey in Washington at rrainey@bloombergindustry.com

To contact the editors responsible for this story: Genevieve Douglas at gdouglas@bloomberglaw.com; Laura D. Francis at lfrancis@bloomberglaw.com