The federal minimum wage for tipped workers has been $2.13 since 1991. That pay rate tends to get lost in the larger debate over whether to raise the national minimum wage for nontipped workers, which is $7.25 an hour.
In theory, the money from tips should make up the difference in pay — and then some. But according to a White House report, tipped workers are more than twice as likely as other workers to experience poverty.
Living On Tips
Under federal law, if tips don't bring employees up to the level of the standard minimum wage, employers are required to make up the difference.
But Saru Jayaraman, founder of the labor advocacy group Restaurant Opportunities Centers United, tells NPR's Arun Rath that it often doesn't work out that way.
"Enforcement is not just difficult, it's practically impossible for employers to have to count hour by hour to make sure that tips make up the difference for every worker for every hour they've worked," Jayaraman says.
And even if employers can ensure that tips make up the difference, Jayaraman says, that essentially creates a system in which the workers are living completely off the mercy and largesse of customers.
Jayaraman's group advocates for eliminating the federal minimum tipped wage, so tipped workers earn the same as workers in other minimum wage industries.
But Scott DeFife of the National Restaurant Association says that could cost thousands of entry-level restaurant jobs that the economy desperately needs. He says there would be other consequences as well.
"You will limit opportunity for young people and for people who are coming from difficult circumstances and need an opportunity to get a restart," DeFife says.
DeFife says the "heavy hand" of federal legislation is not the answer and that the minimum wage at the federal level is really distracting from the conversation that should be happening.
"Most people believe that state governments should be setting more appropriate wage levels for their local economy than one size fits all at the national level," he says.
In fact, states do have different rates. Some have a tipped minimum wage that's higher than the federal standard of $2.13, and seven states have laws requiring that tipped workers receive the same wage as other workers.
Secretary of Labor Thomas Perez says those states have demonstrated that you can raise wages for tipped workers without hurting the economy.
"In the state of Washington, which has had the highest minimum wage in the country over the last 15 years, you look at job growth, and it has been above the national average," Perez says. "And payrolls at the state of Washington's restaurants and bars have expanded by 21 percent. So it's hard for me when we have this actual controlled experiment across America."
DeFife says the National Restaurant Association's own data tell a different story.
"We have some studies and research that show in Washington and Oregon that there are fewer employees per establishment than across the rest of the country," DeFife says.
A Democratic Senate bill would have increased the federal minimum wage to $10.10 and made the tipped wage 70 percent of that. But Republicans struck down the legislation in April.
Labor Secretary Perez says the issue isn't dead, though.
"If at first you don't succeed, we try, try again," he says. "That's really the mantra of the labor rights movement and the civil rights movement, and this president is persistent. We're not going to give up, because this is really an issue of fundamental fairness."
A Unique Model
While the issue remains stalled at the federal level, it's not just states that are making up their own rules. One restaurant in Glendale, Calif., has eliminated tipping entirely.
Brand 158 owner Gabriel Frem says there's a problem with the pay system in the restaurant industry.
"It's very abusive ... when you actually take a person who is making so little and tell them, 'You know what, you sink or swim on your own,' " he says.
But Frem's approach isn't just about a feel-good philosophy. He says it works for his bottom line, too.
"The savings you get as a business from paying the minimum end up costing you more in productivity, stability," he says. "And our experience has been the guests overall love it and the employees that we hire love it."
At Brand 158, orders are taken on a tablet that wirelessly sends the selection and table number to the kitchen. So the wait staff barely needs to leave the floor. And since there's no possessiveness over tables and tips, any server can go to any customer who needs service.
Frem admits it's a leap to assume this model could work everywhere. And California already starts off with a higher wage; in a state where the bottom wage is at that federal minimum of $2.13, it could be a bigger strain for a restaurant to step up and pay so much more.
But Frem thinks the approach makes sense no matter what your bottom line is. He says a stable staff is more productive and consistent, which yields savings.
"If you think you're just paying a lower wage per hour, but every three weeks you have a new staff, people are always leaving, on slow shifts people don't make their rent, they're distressed, it's gonna translate to more costs," he says.
For Frem's employees, it's a no-brainer.
"I get stability here, which kinda gives me more freedom outside of work, which is nice," says Tess Marie-Hudson, a bartender at Brand 158. She makes $15 an hour. "I can plan my life accordingly, I can travel and know when I get back I'm gonna work on a Monday and still make as much as I would on a Saturday."
And though it might feel a little strange not doing that calculation that involves both math and morality at the end of a nice meal, customers seem to like it, too.
"I love it," says Melody Kutulas, who has been to Brand 158 several times. "[The cost] might be a little bit higher, but you're not worrying about tips."
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Transcript
ARUN RATH, HOST:
From the studios of NPR West in Culver City, California, it's ALL THINGS CONSIDERED. I'm Arun Rath. President Obama would like to raise the national minimum wage but he hasn't been able to get Congress on board since 2009 when it was raised to $7.25 an hour. But did you know there's another minimum wage for tipped workers - the majority of whom work in restaurants - it's just $2.13 an hour which makes sense, right? The money from tips should make up the difference and then some. But according to a White House report tipped workers are more than twice as likely to be below the poverty line as other workers and their minimum wage hasn't gone up in 23 years. How can tipped workers make a livable wage? That's our cover story today. Under federal law if tips don't bring employees up to the level of the standard minimum wage employers are required to make up the difference. But Saru Jayaraman, founder of the labor advocacy group Restaurant Opportunities Centers United, says it often doesn't work out that way.
SARU JAYARAMAN: Enforcement is not just difficult - it's practically impossible. For employers to have to count hour by hour to make sure that tips make up the difference for every worker for every hour they've worked - even if employers ensured that tips made up the difference. That essentially creates a system in which these workers are not living on a wage from their employer. They are absolutely living completely off the mercy and largess of customers. They are living almost entirely off their tips.
RATH: Saru Jayaraman's group advocates eliminating the federal minimum tipped wage so tipped workers earn the same as workers in other minimum wage industries. But Scott DeFife of the National Restaurant Association says that's far too much and could cost thousands of restaurant jobs.
SCOTT DEFIFE: There are consequences for taking the minimum wage and rising it up to a point that it's the standard wage for everyone. You will limit opportunity for young people and for people who are coming from difficult circumstances and need an opportunity to get a restart.
RATH: DeFife thinks the heavy hand of federal legislation is not the answer.
DEFIFE: Most people believe that state governments should be setting more appropriate wage levels for their local economy than one size fits all at the national level.
RATH: That's exactly what's happening right now. Some states have a tipped minimum wage higher than the federal standard of $2.13. And seven states have laws requiring tipped workers receive the same wage as other workers. The Secretary of Labor, Thomas Perez, says those states have demonstrated that you can raise wages for tipped workers without hurting the economy.
THOMAS PEREZ: If my friends in the Restaurant Association are correct then it would stand to reason that every time I fly to the state of Washington or if I fly to California it stands to reason that, you know, I should bring a bag lunch because restaurants are going to be very hard to find because they would have gone out of business as a result of having to pay this higher minimum wage. But in fact in the state of Washington which has had the highest minimum wage in the country over the last 15 years you look at job growth and it has been above the national average and payrolls at the state of Washington's restaurants and bars have expanded by 21 percent. And so it's hard for me when we have this actual controlled experiment across America.
RATH: Scot DeFife says the National Restaurant Association's own data tell a different story.
DEFIFE: We have some studies and research that show in Washington and Oregon that there are fewer employees per establishment than across the rest of the country.
RATH: It's pretty clear whose side the Obama Administration is on. But the administration can't act unilaterally. A democratic bill to increase the federal minimum wage to $10.10 an hour and peg the tipped wage to 70 percent of that was struck down in Congress this spring. But Secretary Perez says the issue is still on the table.
PEREZ: If at first you don't succeed we try, try again. That's really the mantra of the labor rights movement and the civil rights movement. And this president is persistent. And we're not going to give up because this is really an issue of fundamental fairness.
RATH: While the issue remains stalled at the federal level it's not just states that are making up their own rules. On Friday I had dinner at a restaurant that's trying something different. They have eliminated tipping entirely. Brand 158 is an upscale restaurant and the city of Glendale. You can't miss the notices on the menu - no tipping. Gabriel Frem is the owner.
GABRIEL FREM: I feel that our industry, legally, we abuse the labor. It's very abusive. When you actually take a person who is making so little and tell them, you know what you sink or swim on your own.
RATH: But Frem's approach isn't just about a feel-good philosophy. He says it works for his bottom line.
FREM: The savings you get as a business from paying the minimum end up costing you more in productivity, stability. And our experience has been the guests overall love it and the employees that we hire love it.
RATH: At Brand 158 a waiter takes our order on a tablet that wirelessly sends our selection and table number to the kitchen. Wait people barely need to leave the floor. There's no possessiveness over tables and tips. So any wait person can go to any customer who needs service. At least four people helped us over the course of our meal. Frem admits it's a leap to assume this model could work anywhere. Say in a less upscale area. Workers at his restaurant are paid $15 an hour, about $6 more than is California's minimum. But in a state where the bottom wage is at the federal minimum of $2.13 an hour - that could be a much bigger strain. But Frem thinks the approach makes sense no matter what your bottom line is.
FREM: When you have a stable staff, and you have a productive staff, and you have a consistent staff that all yields to savings. If you think you're just being a lower wage per hour but every three weeks you have a new staff - people are always leaving on slow shift peoples don't make their rent, they're distressed, it's going to translate to more cost.
RATH: Tess Marie Hudson is a bartender here.
TESS MARIE HUDSON: I mean I get stability here which kind of gives me more freedom outside of work, which is nice. I can plan my life accordingly. I can travel and know when I get back I'm going to work on a Monday and still make as much as as I would on a Saturday. So that - that's nice.
RATH: Customer Melody Cutolous (ph) was at Brand 158 for the third time and she brought along a friend.
MELODY KUTULAS: I love it. I think it's great and that's why I brought her here. I said, it's great. I said that it might be a little bit higher but you're not worrying about tips.
RATH: It feels a little strange to most people, not doing that calculation that involves both math and morality at the end of a nice meal. But trust me - it's very easy to get used to. Transcript provided by NPR, Copyright NPR.
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