Tipped Workers Get a Raise

By: - April 21, 2014 12:00 am

Waiters, bartenders, hairdressers and other Minnesota workers who rely on tips got a big raise last week when the state guaranteed them the same $9.50 hourly minimum wage that other workers will get.

Minnesota is one of five states (along with Connecticut, Delaware, Maryland and West Virginia) plus the District of Columbia to increase its hourly wage floor this year, and in four of them tipped workers also will get a raise, reflecting concern for a category of workers who are often overlooked. Of the 3.3 million workers who rely primarily on tips, about 2 million are waiters and waitresses, according to a recent White House report.

“Tipped workers have been taking it on the chin in all too many states,” U.S. Secretary of Labor Thomas Perez told a House panel last month.

Minnesota did not have to enact a separate increase for tipped workers, since it is one of seven states (Alaska, California, Montana, Nevada, Oregon and Washington are the others) that require employers to pay all workers the same state minimum wage, whether they receive tips or not.

Delaware and West Virginia did have to enact a separate increase for tipped workers, and they opted to do so. Delaware raised its tipped rate from $2.23 to $3.23 and its hourly minimum rate to $8.25. West Virginia’s new minimum rate for tipped workers will be 30 percent of its new $8.75 hourly minimum. That means tipped workers in West Virginia will get at least or $2.63, up from .13.

Connecticut did not alter the percentage of the overall minimum wage it uses to calculate its minimum wage for tipped workers, but by increasing its overall minimum wage it will give a raise to tipped workers, too. Next year, Connecticut’s minimum wage for tipped workers will be 63.2 percent of the broader rate, meaning that the minimum wage for tipped workers, currently $5.69 per hour, will rise to $6.38 per hour once the state raises its minimum wage to $10.10, which it will do in stages over three years.

Only Maryland raised its minimum wage without giving a raise to tipped workers. The state raised its minimum wage from $7.25 to $10.10, but didn’t change its $3.63 minimum for tipped workers.

In D.C., which will raise its overall minimum wage to $11.50, the minimum wage for tipped workers will remain at the current $2.77 an hour. However, D.C. employers now will have to prove their workers earn at least the minimum wage through tips, and provide the difference if not.

Jack Temple, a policy analyst with the National Employment Law Project, said the resistance to raising the minimum wage for tipped workers in Maryland may be a sign of things to come.  “This is a trend that we’re starting to see across the country,” Temple said. “The restaurant industry is demanding that the tipped wage remain frozen in exchange for any increase in the full minimum wage.”

Congress raised the federal minimum wage to $7.25 in 2007. States are free to set higher rates, but they cannot set lower rates for workers covered under the federal labor law. Businesses with less than $500,000 in gross annual revenue, for example, do not have to pay the federal minimum wage, but do have to adhere to any state minimum wage that applies.

Congress hasn’t raised the federal minimum for tipped workers, currently $2.13, in more than 20 years.  However, if a worker’s wages and tips do not equal the federal minimum wage during a given pay period, the employer is required to make up the difference.

Server Taryn Yanez holds an order at The Nook in St. Paul, Minn. Earlier this month, Democratic Gov. Mark Dayton signed legislation giving tipped workers in Minnesota the same $9.50 hourly rate as other minimum wage workers. (AP)

As Stateline has reported, the stalled action in Congress has prompted states to raise their own minimum wage standards. This year 29 states are considering raising their minimum wage, in addition to the five states plus D.C. that already have done so, according to the National Conference of State Legislatures.

Big Changes in Minnesota

Before Minnesota this month increased its minimum wage to $9.50, the state required large employers with annual receipts of $625,000 or more to pay workers at least $6.15 an hour and smaller employers to pay at least $5.25 an hour.  Minnesota was one of only four states in the country with a minimum wage below the national rate of $7.25 per hour. 

But even under the old rules, only 4.2 percent of Minnesota workers were earning at or below the federal minimum, about the same as the national average of 4.3 percent, according to federal data. Tennessee has the highest percentage of workers earning the federal minimum or below, at 7.4 percent.

While Minnesota Gov. Mark Dayton, a Democrat, hailed the state’s first minimum wage increase in a decade, business groups lamented it. The Minnesota Restaurant Association said that a higher minimum wage that doesn’t recognize tips as income would mean higher prices for customers, fewer hours of work for employees or would delay improvements or expansion. “It would hurt the very employees it is designed to help,” according to the group.

Mike Hickey, who heads the Minnesota chapter of the National Federation of Independent Business, said the new minimum wage law “makes Minnesota less attractive as a place to start and run a business.”

Currently, tipped workers earn the most in Washington state, which has the highest state minimum wage at $9.32, followed by Oregon at $9.10. California’s current hourly rate of $8 will increase to $9 an hour this July 1, and then jump again to $10 an hour on Jan. 1, 2016, under legislation enacted last year.  All three of those states are among those that apply the minimum wage to tipped workers without including tips.

Thirty-one states and the District of Columbia require employers to pay tipped workers an hourly wage that exceeds the federal tipped minimum of .13.

A Federal Raise for Tipped Workers

President Barack Obama’s proposal to increase the federal minimum wage to $10.10 also would raise the rate for tipped workers to $4.90, in three yearly increments.  Then, starting in 2017, the minimum wage for tipped workers would automatically rise by 95 cents each year until it reached 70 percent of the minimum wage.

The National Restaurant Association calls the 70 percent increase under the president’s proposal “too radical and unworkable for the restaurant model.” The association, which opposes increasing the overall minimum wage or the minimum wage for tipped employees, said that tipped employees typically earn more than the minimum wage.

Each side points to data to make its case—but the numbers conflict.  Advocates for an increase say the median hourly wage for restaurant servers including tips is just .92, while the restaurant industry says the median hourly earnings for servers range from to .

Supporters of a higher wage point to a 2011 study from the Economic Policy Institute, a left-leaning think tank in Washington, D.C., showing tipped workers are more than twice as likely to fall below the federal poverty line and three times as likely to rely on food stamps as the average worker.

That’s largely because while employers are required by law to make up the difference to ensure tipped workers make at least the minimum wage, many don’t, advocates say. Tips also are unreliable and unpredictable, said the National Employment Law Project, which also supports a higher rate.

At $2.13, the current federal minimum wage for tipped workers is 28 percent of the overall minimum wage, the smallest share since Congress set a minimum wage for tipped workers in 1966, according to the White House report.

But businesses and the restaurant industry point to a 2011 study which found that a 10 percent increase in the cash wage reduced the hours worked by tipped employees by about 5 percent.

Labor Secretary Perez rejected the notion that a higher tipped wage would hurt workers or businesses.  “I’ve hardly seen a diminution in the restaurant industry [in those states without tipped wages] there because it’s a level playing field,” he said. 


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