Raising the federal minimum wage always stirs up controversy. Linking the wage to consumer price increases will undoubtedly add fuel to the fire when/if Congress gets around to seriously considering the bills I wrote about last month.
The bills would do something that’s likely to raise even more outcry, in some quarters. They would raise the tip credit wage and link it to the regular federal minimum so that it too would rise over time, as it used to.
A bit of background.
The tip credit wage began as a small victory for the hotel and restaurant industries, which argued that tips partly reflect what owners spend to provide customers with a satisfying experience, e.g., on “ambience,” wages for kitchen staff.
Thus, said their lobbyists, some portion of tips received should be credited against the minimum wage owners would otherwise owe.
Congress bought this somewhat dubious argument — or perhaps decided to propitiate the industries, which had been able to pay their workers as little as they chose.
In any event, it created the tip credit wage — a cash amount lower than the regular minimum wage that employers could pay workers who received more than a relatively small sum in tips.
The tip credit wage was originally 50% of the regular federal minimum, though employers had to pay more if tips didn’t bring a worker’s wage up to that minimum.
This generally remained the case until 1996.
Then National Restaurant Association President and CEO Herman Cain — yes, the same Herman Cain who aspired to be our next President — persuaded Congress to break the link between the tip credit wage and the regular federal minimum.
The tip credit wage was then $2.13 an hour. And it’s remained there ever since.
What this means, of course, is that you and I may help restaurant owners meet their minimum wage obligations when we tip our servers. Same when we leave a tip at the bar or put some cash into the hand of the parking attendant.
We may offset wages for other owners too, e.g., when we tip the doorman who hales a cab for us or the person who cuts our hair or, for if we’re given to gambling, the card dealer at our table.
I assume that’s not what we intend. We want to give the people who serve us something extra.
We do in the seven states that don’t include a tip credit wage in their own minimum wage laws.
Also, to some extent, in other states. Twenty-four* of them — and the District of Columbia — set a tip credit wage higher than the federal minimum.
Even in states where the federal tip credit applies, our tips, combined with others, may boost a server’s wage over the regular minimum. But not by much.
Most tip-credit workers make a few dollars more than the full minimum wage, according to a report by the National Employment Law Project.
But they’re still more than twice as likely as other workers to fall below the federal poverty line — and wait staff almost three times more likely.
Tip-credit workers are also vulnerable to unpredictable wage fluctuations — assignment to a slow shift, the ups and downs of tourist traffic, recessions that cause a lot of us to cut back on nonessentials like dining out. The tips we leave too, NELP notes.
And we’ve reasons to doubt that our tips — or what we think of as tips — go only to the servers we mean to reward.
Employers can legally deduct processing charges from tips added to credit card payments. And those who add a service charge to bills for large parties can keep it all.
Employers can also put all tips received into a pool and parcel them out among all their workers who customarily receive tips. A fixed share then for our server, no matter how much we left.
Not necessarily a fair share either because pooling virtually invites abuse.
We’ve got reports — and some recent lawsuits — claiming that employers have illegally used tip money to compensate those non-tipped workers whose wages supposedly justify the tip credit.
Also that they may cream off some for themselves. A survey of low-wage workers in two of America’s largest cities found that employers or supervisors had stolen tips from 12% of them.
Seems to me there are good arguments for abolishing the tip credit wage. But they won’t fly any time soon — not, at least, at the federal level.
The Fair Minimum Wage Act strikes a compromise. It would gradually raise the tip credit wage to 70% of the regular federal minimum and then freeze the percent so that the wage also would rise with basic living costs.
Combined with tighter enforcement of existing tip credit rules, this could help many of the people who put food on our table put food on their own.
* I’m including New York because it sets a higher tip credit wage for large categories of service workers.