Tipped workers and the minimum wage

Tipped workers hold a uniquely vulnerable position in our nation’s employment landscape. Federal law allows for pay discrimination between tipped and non-tipped workers, permitting employers to pay tipped workers as little as $2.13 per hour.

This is an equality issue

Nearly 70% of tipped restaurant workers are women, 40% of whom are mothers. The sub-minimum wage for tipped workers is in effect legislated pay inequity for a predominately female workforce. Eliminating the sub-minimum wage will help address the persistent gender pay gap, where women are paid just 78 cents for every dollar that men are paid.

  • The typical full-time, year round, female restaurant worker is paid 79% of what her male counterpart earns. For female servers – a tipped classification – that amount drops to just 68% of what their male counterparts are paid ($17,000 vs. $25,000 annually).(1)
    • Black female servers are paid only 60% of what male servers overall are paid, costing them more than $400,000 over a lifetime.
    • Tipped restaurant workers in states with a sub-minimum wage for tipped employees have a much higher poverty rates than states without a sub-minimum wage (20% vs. 14%). Because tipped workers are predominately female, this poverty burden falls disproportionately on women. Women restaurant workers are nearly 30% more likely to experience poverty than their male counterparts.(2)
  • The restaurant industry is the single largest source of sexual harassment claims in the U.S. This is largely the result of the fact that tipped workers earning a sub-minimum wage are dependent on the generosity of customers for their income, rather than their employers. As a result, they must often tolerate inappropriate behavior from customers, and are vulnerable to sexual harassment from coworkers and managers.
    • While 7% of American women work in the restaurant industry, it is responsible for 37% of all sexual harassment claims to the Equal Employment Opportunity Commission.

This is an economic issue

Tipped workers in states with a sub-minimum wage are twice as likely to live in poverty and rely on food stamps than the rest of the U.S. workforce. The vast majority of tipped workers earn just slightly above the minimum wage, even once tips are included.

  • In the seven states that have eliminated the tipped minimum wage, the poverty rate among tipped workers is lower by one third, 14% compared to 20%.
  • The reduction in poverty is even more significant for workers of color – a full 25% of workers of color in states with a sub-minimum wage live in poverty, compared to just 14% in states without a sub-minimum wage.
  • The restaurant industry is one of the largest growing industries in the nation, and the largest employer of minimum wage workers (1 in 12 Americans). The Bureau of Labor Statistics projects that the occupation sector of Food Preparation and Serving will add nearly a million jobs—one of the largest projected occupational increases across occupations—from 2010 to 2020.
  • Putting more money into the pockets of the growing number of low-income tipped workers, who will spend their additional earnings at local businesses, boosts the consumer spending that drives our nation’s economy.

This is a bipartisan issue

One Fair wage is a unifying issue with the power to transcend party lines. 71% of Americans – Democrats, Independents and Republicans – support a proposal to increase the minimum wage for tipped workers.

  • A recent national poll conducted by the National Employment Law Project shows that 71% of Americans favor the proposal to increase the minimum wage for tipped workers to match the regular minimum wage.
  • The measure to increase the minimum wage for tipped workers has polled positively on both sides of the aisle, 78% of Democrats, 71% of Independents, and 62% of Republicans favor the increase.

The current system doesn’t work

Under federal wage rules, when tips are not enough to bring a worker’s average wage up to the full minimum wage, the employer is supposed to make up the difference by “topping up” the employee. But this complex system requires extensive tracking and accounting of tip flows, leaving tipped workers vulnerable to abuse and inaccuracy.

  • While employers are legally required to “top-off” a tipped worker’s pay when it falls short, the complicated system enables employers to routinely violate wage and hour laws with minimal repercussion.
  • From 2010-2012, the Wage and Hour Division of the US Department of Labor conducted nearly 9,000 investigations in the full service sector of the restaurant industry, and found an 84% noncompliance rate. $56.8 million was recovered in back wages for nearly 82,000 workers and $2.5 million was assessed in civil money penalties.

This is an issue we can fix

The seven states, including the entire West Coast, that have already eliminated the sub-minimum wage account for over one million tipped workers and boast flourishing restaurant industries.

  • These states have higher restaurant sales per capita and higher average employment growth for tipped workers, and yet average menu prices are not higher than in states with a subminimum wage.(3) All of the states that require employers to directly pay the full minimum wage to tipped workers are expected to have greater restaurant job growth than states with a sub minimum wage for tipped workers in the next decade – in most cases, much greater.(4)
  • The restaurant industry projects employment growth over the next decade to be higher in states without a tipped minimum wage, 10.5% compared to 9.1% in states with a subminimum wage.
  • Equal minimum wage rates for tipped and non-tipped workers result in smaller wage gaps for women overall and lower poverty rates for tipped workers.(5)

1 Restaurant Opportunities Centers United, 2012. Tipped Over The Edge: Gender Inequity in the Restaurant Industry.
2 Economic Policy Institute, 2014. Low Wages and Few Benefits Mean Many Restaurant Workers Can’t Make Ends Meet.
3 National Restaurant Association, 2014. 2014 Restaurant Industry Forecast.
4 National Employment Law Project Policy Brief, 2014.
5 National Women’s Law Center. 2014. States with Equal Minimum Wages for Tipped Workers Have Smaller Wage Gaps for Women Overall and Lower Poverty Rates for Tipped Workers.