DC Mayor and Council Preempt One Fair Wage for All

July 11, 2016

We in the District of Columbia like to pride ourselves on how progressive our community is. But it’s behind the curve now on an issue that directly affects nearly 29,000 local workers — those whom employers can pay far less than the minimum wage.

The draft Democratic Party platform supports an end to the sub-minimum, i.e., tip credit, wage. That would extend nationwide a policy already in force in seven states. The DC Council instead chose to merely increase the wage to $5.00 by 2020 — even less than the Mayor had proposed.

All our elected officials knowingly preempted our chance as constituents to decide whether all workers our labor laws can cover* should get paid at least $15 an hour — one fair wage, as it’s commonly called.

Let’s just say they know not only which side their bread is buttered on, but who butters it — restaurant owners represented by the local affiliate of the National Restaurant Association and other business owners for whom the Chamber of Commerce purports to speak.

I’ve written about the tip credit wage before, but for those new to the issue, here’s what it is and a summary of what’s wrong with it.

How the Tip Credit Wage Works

Employers in most states and the District may pay workers who regularly receive tips a much lower cash wage than the regular minimum. They must fill in any gap between the tip credit wage, plus tips a worker receives and the regular minimum.

So, for example, owners of sit-down restaurants in the District, along with hotel owners and other businesses like hair and nail salons must now pay their tipped employees $2.77 an hour, no matter what.

If their workers receive at least $8.73 an hour in tips, they’re home free. If not, they must add to paychecks enough to equal $11.50 an hour.

At best then, customers subsidize employers’ labor costs, though most believe they’re just rewarding workers who’ve served them.

Why the Tip Credit Wage Doesn’t Work

A common complaint — amply documented — is that most workers subject to the tip credit wage earn very little. That, in theory, is  a problem with the minimum wage itself. In practice, however, workers may not get as much as they’ve earned — or even know they’ve been shorted. Several reasons for this.

First off, workers may not know how much they’ve received in tips. Consider, for example, a wait server who’s rushing from one table to another. How’s she supposed to keep track of tips, when so many now are added to credit card bills?

Second, employers may legally do several things to deny workers the full amount they receive in tips. They may deduct processing charges for tips added to credit card bills. They may put all tips into a pool and divvy them up among tipped staff, based on some formula they’ve established.

Third, the tip credit system virtually invites abuse. For example, we know of cases where employers have siphoned off tips from the pool to ramp up pay for non-tipped workers. In other cases, employers have required tipped employees to do a lot of work they don’t receive tips for while still basing their whole pay on the sub-minimum.

In still others, employers simply don’t fill in the gap between the sub-minimum wage, plus tips and the regular minimum. More than one in ten workers in tipped occupations reported total hourly wages below the federal minimum, according to White House economists and the U.S. Department of Labor.

The Labor Department has said it knows of at least 1,500 recent cases of wage theft associated with the tip credit wage. But there are surely more.

The provision that requires employers to ensure that tipped workers earn at least the full minimum wage is difficult to enforce, the White House report says. And the Labor Department has nothing like the resources to investigate as broadly as seems warranted.

This seems also the case in the District, where a coalition of local and national organizations recently called for, among other things, “proactive, increased enforcement” of worker protection laws. But the office responsible for enforcing them won’t have enough staff.

As things stand now, both the federal and local wage and hour enforcement agencies depend largely or solely on complaints filed by workers and organizations representing them.

But workers hesitate to complain because managers can readily retaliate — if not by firing them, then by reducing their hours or putting them on shifts that yield paltry tips.

Wage theft isn’t the only thing tip credit workers could, but often don’t complain about. A survey of restaurant workers found very high rates of sexual harassment — and twice as many in tip credit states as others.

More than half felt they had to put up with it because they’d lose tips — and perhaps their jobs — if they didn’t.

In short, what’s to like if you’re not a business owner who profits, legally or otherwise, by paying your workers the tip credit wage?

The owners and associations that represent them say tipped workers should and do like it and that eliminating it would harm not only them, but the local economy.

I’ll take up their arguments in a followup post — in part because we may not have heard the last of them, whatever happens nationally in November.

* Only Congress and federal agencies can set wages for federal employees and workers employed by federal contractors. The draft Democratic Party platform addresses both — the former with a $15 an hour minimum wage and the latter with an executive order “or some other vehicle.”



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

September 2, 2014

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.