Diane Earned a Big Tip, But She May Still Live on the Verge of Poverty

My husband Jesse and I spent the weekend before last in Cleveland. We were visiting his mother to help celebrate her 95th birthday. The family gathered for a long lunch at a seafood restaurant in one of the suburbs.

Diane, who waited on our table, is altogether the best server I’ve ever encountered — and a fine example of what happens to the tips we think of as a reward for good service.

She takes pride in her professional skills — so much so that she’s written an e-book on “etiquette” for restaurant servers and those of us served.

It’s called I’ve Been Doing This Since Before You Were Born because Diane, who’s approaching middle age, has worked as a restaurant server all her life and wanted to share what she’s learned.

I asked her if she was paid the tip credit wage. Indeed, she is — $3.89 an hour. This is all her employer has to pay here, so long as her tips bring her total earnings to an average of $7.95 an hour per pay period because that’s now the regular minimum wage in Ohio.

I asked her if the restaurant owner pooled tips, i.e., collected them all and then doled them out according to some formula he’d devised.

Sort of. When Diane works daytime hours, she owes a total of 15% of her tips to the bartender, the busser and the person who sets out the plates for servers to bring to the tables. During evening hours, their share doubles.

That’s not so bad, she said. Her former boss also required servers to pay a fee in order to collect tips that were put on credit cards. This further nick in take-home pay could well have been legal, as tip pooling can also be.

Now, I’ve no idea how much Diane earns, once she’s shared her tips, as required. But we do have some new information on tip credit workers generally, thanks to the Economic Policy Institute.

There are somewhat over 3.5 million of them nationwide. Well over half — 58.5% — are servers or bartenders.

About two-thirds of tipped workers, including those in the seven states that don’t permit employers to pay them a lower wage, are women. The share is even higher for servers and bartenders — 68.5%.

More than half have at least some college education, as I’m guessing Diane does. Yet for most of them, as well as for those with less education, our tips don’t provide anything close to a living wage.

The median hourly wage for all tipped workers is just $10.22 — $6.26 less than the median for all U.S. workers. The gap is 11 cents greater for servers and bartenders.

For those who are women, as most are, the gap is even higher — $6.59 an hour or 60% of the median for all workers.

Tipped workers are far more likely than others have family incomes under $40,000 a year. This is the maximum for nearly half who are servers or bartenders — a slightly more than half for those who are women.

Family incomes are considerably lower for many. The poverty rate is nearly twice as high for tipped workers as for those whose take-home pay is entirely what they get from their employers.

And again, servers and bartenders are worse off than the rest. Their poverty rate nationwide is 14.9%, as compared to 6.5% for non-tipped workers. This, however, includes those who work in states with no tip credit wage.

Their poverty rate is a still-troubling 10.2%, strongly suggesting that other factors also keep tipped workers’ incomes low, e.g., low minimum wages, even in states where the minimum exceeds the federal, part-time and irregular schedules, lack of paid sick leave.

Not surprisingly, a higher percent of tipped workers than others receive some federally-funded benefits — 46%, as compared to 35.5%. The total value of the assistance is higher too — and highest for servers and bartenders.

It’s still, on average, only $2,724 a year, including the Earned Income Tax Credit. That’s hardly enough to make up for the low hourly wages, even when augmented by tips.

Consider that the median hourly wage for servers and bartenders translates into a full-time, year round wage of only about $21,130. And those full-time, year round jobs may be more the exception than the rule.

The minimum wage bill that’s stalled in Congress would gradually raise the federal tip credit wage until it reached 70% of the regular federal minimum. EPI, however, believes it would be “prudent” to simply do away with the “two-tiered wage system.”

Restaurant Opportunities Centers United, which advocates for “restaurant workplace justice,” has also called for abolishing the tip credit wage. It cites not only the lousy take-home pay, but other problems, e.g., wage theft, sexual harassment that servers are constrained to tolerate because they depend on the harassers for tips.

In short, there are lots of reasons to eliminate the tip credit wage, though I’m not holding my breath till this happens.

We would still have added a hefty tip to our bill. But it would all have gone to Diane, rather than help her employer pay her and the colleagues she has to share it with only $3.89 an hour.

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