Sub-Minimum Wage

Because I’ve been so close to it for so long, it always surprises me when people don’t know that many restaurant and other service workers receive less than the federal minimum wage from their employer. Here’s the deal: An employer who hires someone working in a traditionally tipped position may, in most states, take a “tip credit” on the employee’s wages. The employee is still technically making minimum wage, but the employer gets to count up to $5.12 per hour of the employee’s tips as wages.  Therefore, the employer only has to pay the employee $2.13 per hour (for a total of $7.25). That means that a tipped employee has to make at least $5.12 an hour in tips just to get back to where other minimum wage workers are.*

Even less well-known is the fact that these businesses also have many indirectly-tipped employees who are also subject to tip credit (i.e. being paid less than minimum wage). These are support employees. In a restaurant, hosts, food runners, bussers, and bartenders frequently receive tips indirectly. In most cases, this is accomplished by a tip sharing program administered by the employer. The employer will take a certain percentage of the directly-tipped employees tips and redistribute them to the support employees. This shouldn’t be more than about 15% of a server’s tips, but it frequently is. So remember, not everything that you leave as a tip on a table will go to your server. 

All employees subject to tip credit who make less than minimum wage also will be required to do “side work,” that is to say, work that doesn’t involve receiving tips. Legally, up to 20% of a tipped employee’s shift can be spent doing work for which they will receive $2.13 an hour and not receive tips. 

This is not a great system for anyone but the employers. Obviously, it’s not great for the employees. I’ve also spoken to many, many customers who were shocked to find out what laws applied to tipped employees. Part of the problem is that this simply isn’t something that’s widely discussed. When you walk into a restaurant, you have no idea who is or is not getting tipped or what sort of tip sharing arrangement the employer has imposed.

So, what I propose is a little bit of regulation. Restaurants say they can’t stay in business without paying their employees less than minimum wage. That’s nonsense, but we’ll let it slide. But…let’s have restaurants and other businesses that use tip credits post their policies at the door. “We pay our servers no less than X dollars per hour, we pay our support staff (hosts and bussers) no less than Y dollars per hour. Our servers pay Z percentage of their tips to pay the support staff.”

Maybe I’m wrong, but I suspect most patrons would like to know these arrangements when they’re leaving a tip. Places that treat their workers better could proudly post the higher wages they offer. And maybe, some people would be outraged by this silly system of letting employers pretend that employee tips are wages, and forcing some employees to pay the wages of other employees.


* If the employee does not make at least $5.12 per hour in tips, the employer must make up the difference. Most employers do; some don’t.  Those that do make up the difference will often fire the employee for “poor performance” to avoid having to make up the difference.

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