Proposed Minimum Wage Increase Would Give Tipped Workers First Raise Since 1991

Minimum wage is a hot topic of discussion at the moment, with President Obama expected to address it in his State of the Union address this evening. Senate Democrats are pushing to raise the minimum wage, and the lawmakers are suggesting an increase in the minimum tip wage to go along with.

As the New York Times reports, Senator Tom Harkin of Iowa has proposed to raise the federal minimum wage to $10.10. His bill also proposes to raise the minimum tip wage by $0.95 annually until it reaches $7.10, and then to tie later increases to inflation.

The federally mandated minimum wage for tipped workers is still $2.13 an hour. The law allows for that, as long as tips make up the difference to federal minimum wage for other workers. If tips fall short of the missing $5.12, then the employer is required to make up the difference, at least in theory. In practice, not all employers are great about compliance.

Nineteen states use the $2.13 federal minimum for tipped workers, a salary that has remained unchanged since 1991. Thanks to inflation over the last 23 years, $2.13 from 1991 is worth about $1.24 today–meaning that having $2 in your pocket goes just over half as far now than it did then.

The system of tips instead of higher wages in restaurants is both long-standing and growing unpopular. But unsurprisingly, groups representing restauranteurs–the employers who would have to more than double their employees’ pay just to match minimum wage for everyone else–object to any potential increase.

The National Restaurant Association says that mandating higher pay for servers would increase the menu prices of food in restaurants, as well as forcing restaurants to cut back elsewhere: on staffing levels, on quality of food, on facilities, on anything. One might argue that raising the cost of a meal by 20%, and no longer requiring a conscientious customer to add that extra 20% onto the tab at the end of the meal, would be a neutral for diners, but some restaurant owners disagree.

An owner of restaurant chains in New Hampshire told the NYT that increasing wages would require him to cut his Saturday night staff from 12 to 10, a net loss for customer service. He added that increased pay, “takes away my ability to give raises to a dishwasher, prep cook or line worker, who may make $12 or $13 an hour” as opposed to the theoretical $20 an hour bartenders and servers in his restaurants make after tips.

The increased wage proposal, though, is unlikely to go anywhere this year. As the NYT notes, “given stiff opposition among top Republicans, especially in the House, the chances of an increase passing Congress in a midterm election year are slim.”

The 113th Congress, then, will probably punt on the issue, leaving tipped workers at half of the 1991 minimum wage for another year longer.

Proposal to Raise Tip Wages Resisted [New York Times]

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  1. CzarChasm says:

    “One might argue that raising the cost of a meal by 20%, and no longer requiring a conscientious customer to add that extra 20% onto the tab at the end of the meal, would be a neutral for diners, but some restaurant owners disagree.”

    Anyone who argues this is clearly confused about how math and taxes work.

    • MarthaGaill says:

      Also, it makes the menu prices higher. When people think they’re getting the $9.99 dinner, they don’t always imagine how much the total is with tip. They think it’s a good value. Suddenly they see a meal is now $12 and it doesn’t sound as cheap.