Monday was National Waitstaff Day, a time to appreciate the estimated 2.25 million waitstaff working in America’s 542,000 eating and drinking establishments, and this year, the U.S. Census Bureau is urging Americans to “add a smile to the tip” as they dine out. But unfortunately, smiling servers might be hard to come by since legislation to eliminate tips remains on the docket in several states across the country.
For those who have never worked in the food service industry, servers and bartenders commonly receive a wage that is below the minimum wage. Employers are allotted a “tip credit,” in which waitstaff and other tipped employees can be paid a wage that falls below the minimum requirement so long as the tips and paid wage combined is equal to or greater than the federal government and state’s minimum wage.
Some advocacy groups, such as the Restaurant Opportunities Center and One Fair Wage, decry the tip credit as an “unfair” payment practice. Unfortunately, these misguided groups have launched numerous campaigns to raise the minimum wage so high that the tip credit would no longer be viable for employers. Apparently, these groups are unaware that arbitrarily raising the minimum wage has been proven to produce several negative consequences, including fewer jobs for low-skilled employees.
In Michigan, signatures are being collected for a ballot initiative that would raise the minimum wage for tipped employees to $12 per hour by 2024.
In Washington DC, voters will decide in June whether or not to increase the tipped employee wage in increments, “until it equals the standard minimum wage in 2026.” (Keep in mind, tipped employees in the nation’s capital received a wage increase in 2016, up to $5.00 an hour.
Bills in the Massachusetts House and Senate have been introduced to incrementally increase the tipped wage, currently at $3.75. The increases would occur over eight years, until the wage equals the standard minimum wage.
Pennsylvania’s proposed legislation would increase tipped employees’ wages instantly—from $2.83 to $9 per hour—and the minimum wage would increase each year until 2025, when it would be $15.75 per hour.
Rhode Island’s pending legislation aims to raise the tipped wage of $3.89 “by fifty cents per year … until the tipped minimum wage is not less than two-thirds (2/3) of the regular minimum wage.”
Finally, legislators in the Ohio House and Senate have introduced legislation to increase the minimum wage to $12 per hour by 2025, which would be implemented incrementally using 50-cent annual increases. Under current state law, tipped employee wages must be half the minimum wage, meaning employers must pay their tipped employees $6 per hour in 2019, up from $4.15 in 2018.
It may seem difficult to argue against proposals that immediately deliver more money to tipped employees’ pockets, but these measures ignore other important parties in the restaurant business, especially owners and non-waitstaff employees, and they fail to recognize the problems such measures cause for the waitstaff.
Under these proposals, the wage increase would be paid by an employee’s restaurant. Unfortunately, profit margins in the food and beverage industry are extremely slim, with a “3-5 percent average restaurant profit.” Labor costs—one of the largest expenses for restaurant owners—are estimated to be around “30 to 35 percent of gross sales.” These costs already eat into owners’ narrow profit margins. Moreover, most restaurants—even with existing tip credits—fail within their first year of operation, and of the restaurants that survive their first year, around 70 percent fail “within the next 3 to 5 years,” according to a recent study Perry Group International.
Because of the problems these problems cause for restaurants, tipped employees—an oft-ignored contingent in the minimum wage debate—are arguably the most opposed to eliminating the tip credit. For example, when Maine voters approved an increase to the state’s minimum wage that included a raise on tipped wages in 2016, there was massive outcry throughout the food and beverage service industry. Thankfully, in 2017, the state’s legislature reversed the decision and reinstated the tip credit.
Although certain groups are reluctant to acknowledge it, tipped employees often make more than the minimum wage. Joshua Chaisson is a server and vice president of Restaurant Workers of America, an advocacy organization borne out of the Maine debacle that’s dedicated to preserving the tip credit nationwide. As a server, Chaisson estimates that he earns an average of $22 per hour and fears if tip credits are eliminated, there will be serious consequences, including “increased automation in full-service restaurants … the harmful no-tipping model,” and a massive number of restaurant closures.
Multiple studies support Chaisson’s reservations. For instance, a 2011 study found the elimination of the tip credit would produce a “decline in employment opportunities for tipped employees.”
A “social experiment” conducted by one renowned restauranteur offers stark evidence that waiters and bartenders prefer being tipped. In 2015, Danny Meyer eliminated tipping from his restaurant, switching instead to a “hospitality included” menu. In 2017, a Grubstreet profile noted that servers’ wages actually dropped, not to mention Meyer lost nearly “40 percent of longtime front-of-house staffers.”
It shouldn’t come as a great surprise, waitstaff in Michigan and Washington, DC are vehemently against the ballot initiatives, which demonstrates the restaurant industry’s wage model isn’t broken and definitely doesn’t need counterproductive government mandates that will backfire and harm those they intend to help.
To commemorate Monday’s National Waitstaff Day, be sure to generously tip your server—preferably in cash—and don’t let know-nothing politicians convince you increasing the minimum wage is good for food industry workers.