While the federal minimum wage currently equals $7.25 per hour, federal law permits employers to pay tipped workers a base wage of only $2.13 per hour, provided that tips make up the difference. Because tipped workers are subject to this separate, sub-minimum wage, they continue to face low wages, high poverty, and great uncertainty from shift to shift.
Tipped Workers Receive Low Wages
While some tipped workers may earn enough in tips to bring their hourly earnings well above the minimum wage, the vast majority of tipped workers earn low wages just above the minimum wage.
For example, the median hourly wage for restaurant servers is just $8.92 per hour. Tipped workers are more than twice as likely to fall under the federal poverty line, and nearly three times as likely to rely on food stamps, as the average worker, according to a 2011 study by the Economic Policy Institute.
Tips are Unreliable and Unpredictable:
Tips are notoriously erratic, varying from shift to shift and from season to season. Tipped workers are hit especially hard during economic downturns, as financially squeezed consumers often have no choice but to leave smaller tips or cut back on spending at diners or salons altogether. A higher tipped minimum wage would help cushion the impact of these fluctuations and ensure a guaranteed basic income for tipped workers.
Raising the Base Wage for Tipped Workers Boosts Income and Reduces Poverty:
Seven states have set the base wage for tipped workers equal to 100 percent of the full minimum wage, ensuring that tipped workers are paid the full minimum wage directly by their employer.
A 2013 study from the University of California-Berkeley examines each instance of an increase in the tipped minimum wage on the state level since 1990, and finds that each 10 percent increase boosts earnings for tipped workers by 0.45 percent. ployers for each hour of work. This model policy has proven effective in reducing poverty among tipped workers: in these seven states, tipped workers are 25 percent less likely to fall under the federal poverty line compared to states with lower tipped minimum wages.
Restaurants Can Afford to Pay a Higher Tipped Minimum Wage:
A 2013 analysis from the University of California-Berkeley examines every increase in the tipped minimum wage on the state level since 1990 and concludes that “the evidence…does not indicate that there are significant negative effects of tipped wages or regular minimum wages at the levels experienced in the U.S. since 1990 in full-service establishments.”
For example, in Washington, Oregon, Nevada, and Alaska, the tipped minimum wage ranges from $7.75 per hour up to $9.19 per hour – over 360 percent higher than the current $2.13 federal tipped minimum wage – yet restaurant industry job growth in all of these states is projected to significantly exceed the national average:
Raising the Tipped Minimum Wage to 70 Percent of the Full Minimum Wage:
Raising the tipped minimum wage to 70 percent of the full minimum wage will ensure that the bulk of tipped workers’ income is paid directly by their employers rather than being made up by tips. Providing tipped workers a stable base income paid directly by their employers is a key step for improving the economic security and working conditions of low-paid tipped workers.
In response, President Obama and Congressional leaders have called for raising the federal minimum wage to $10.10 per hour, indexing the minimum wage to automatically adjust each year with the rising cost of living, and boosting the tipped minimum wage from $2.13 per hour to 70 percent of the full minimum wage.