Thursday, January 02, 2014

Living Off Tips

This piece and the attached video are worth thinking about.  The federal tipped minimum wage, the wage restaurant servers get before earning any tips, is $2.13 an hour in direct wages.  Here's how it's supposed to work:

An employer of a tipped employee is only required to pay $2.13 an hour in direct wages if that amount plus the tips received equals at least the federal minimum wage, the employee retains all tips and the employee customarily and regularly receives more than $30 a month in tips. If an employee's tips combined with the employer's direct wages of at least $2.13 an hour do not equal the federal minimum hourly wage, the employer must make up the difference.
Many states have higher tipped minimum wages.  But note that the federal tipped minimum wage (that two bucks and thirteen cents) was set in 1991 and this Wikipedia article suggests that sixteen states are still using it as the basis of server compensation packages.

The linked Crooks&Liars piece suggests that employers might not make up the difference when the minimum wage and the tips fail to come up to the federal minimum hourly wage.  But even if they do,  the labor contract here  tilts the usual ideas we have about the entrepreneurs being rewarded for risk-bearing and the workers being protected from it by earning fixed wages:

If I understand this right, the employer will never have to pay more to the wait staff than whatever the relevant hourly (state or federal) minimum wage might be.  If the business is booming and the servers make enough in tips to earn the relevant hourly minimum wage or more, the employer only needs to pay that tipped minimum wage (say, $2.13 an hour in some states).  If the business is not booming, the employer will end up having to pay all of the federal or state minimum wage rate.  But that's it!

The servers, on the other hand, cannot predict their overall earnings that easily, because they depend mostly on the tips, and though there are conventions about what the right amount for a tip should be, a customer who simply refuses to pay for the work of a server cannot be made to do so.  In a sense, it is the servers who are the risk-takers here, and that can make life hard for low-income workers who try to schedule the payment of rent and utilities.

The push, as I understand it, is for a higher federal tipped minimum wage, given that the current one was set in 1991, probably before the birth of many who work today as servers.

Other countries might have something to offer here, too.  In some the tip is routinely included as a certain percentage of the total invoice.  Tipping above and beyond that is only for some extraordinary services.  This practice doesn't completely isolate the serving staff from the business risks of the restaurants but reduces the ability of a customer to walk away without paying.