What’s the Deal with Tipping?

Published April 20th, 2016 -  - 04.20.1616


The institution of tipping has recently evoked a firestorm of criticism. Opponents of tipping point out that many servers earn below minimum wage; that servers, particularly women, often tolerate sexual harassment for the sake of earning better tips; and that tipping is rife with racial and other biases. In response to these criticisms, a handful of restaurants have abolished tipping entirely. Others have replaced it with auto-gratuities (which, due to a new IRS rule, may be on their way out); still others require servers to pool their tips. These piecemeal attempts at reform are unlikely to have a widespread impact, and raise potential problems of their own. This all invites the question – what’s the deal with tipping?

Minimum Wage (or Lack Thereof)

Federal law does not require employers to pay tipped workers the full federal minimum wage. Section 3(m) of the Fair Labor Standards Act (FLSA) permits employers to take part of an employee’s tips as a credit toward its minimum wage requirement. Employers are required to provide a minimum cash wage of $2.13, known as the tipped minimum wage, but may “credit” up to $5.12/hour of an employee’s tips towards meeting the federal minimum wage of $7.25/hour. This is known as a “tip credit.”

Policies are not uniform across states. Some states require employers to pay workers above the federal tipped minimum wage of $2.13/hour, but still permit a tipped minimum wage – ranging from the negligibly higher rate of $2.23/hour in Delaware to $7.75/hour in Hawaii (Hawaii’s state minimum wage is $8.50/hour). A smaller but not insubstantial number of states require employers to pay tipped employees full state minimum wage. A full breakdown of state minimum wage requirements is available here.

In theory, as long as workers earn minimum wage, that should be sufficient. In practice, it often is not. Studies suggest that many employers routinely ignore federal requirements to make up the difference between $2.13 and $7.25. This may be deliberate avoidance of the law, but it may also be due to inconvenience and impracticality. As Saru Jayaraman, founder of Restaurant Opportunities Center (ROC), explains, employers “have to count hour by hour to make sure that tips make up the difference for every worker for every hour they’ve worked.” The Economic Policy Institute notes it is instead “up to the employees to know and understand this law.” Many employees, however, are unaware of the minimum wage requirements. Even when they are aware of their rights and file official complaints, “[e]nforcement is not just difficult, it’s practically impossible.”

Finally, minimum wage rarely equates to a living wage, and even with tips many restaurant workers earn wages just above the minimum. According to a 2011 study by the Economic Policy Institute, “tipped workers are more than twice as likely (and waiters almost three times as likely) to fall under the federal poverty line” and nearly three times as likely to rely on food stamps. A 2014 White House report noted that the issue is particularly salient for women, who account for 72% of all workers in predominantly tipped occupations. The tipped minimum wage “creates a system in which the workers are living completely off the mercy and largess of customers” – which leads to insecurity, instability, and tolerance of sexual harassment.

Sexual Harassment

Many tipped restaurant workers report tolerating sexual harassment because they depend on customers for their wages. In October 2014, ROC released a startling report, The Glass Floor: Sexual Harassment in the Restaurant Industry, detailing rampant sexual harassment of workers in the restaurant industry. It notes:

One of the most powerful findings of [the] study is the extent to which the industry’s already high levels of sex harassment are exacerbated by systems in which tipped restaurant workers – primarily women – endure legalized pay discrimination in the form of a sub-minimum wage. In states that allow a sub-minimum wage for tipped workers, these workers’ hourly wages are so low that they often go entirely to taxes, forcing millions of tipped restaurants workers, the vast majority of whom are women, to live entirely off their tips.

Living off tips makes an industry already rife with sexual harassment even more dangerous. Women restaurant workers living off tips in states where the sub-minimum wage is $2.13 (hereinafter called ‘$2.13 states’) are twice as likely to experience sexual harassment as women in states that pay the same minimum wage to all workers. Tipped workers in $2.13 states report that they were three times more likely to be told by management to alter their appearance and to wear ‘sexier,’ more revealing clothing than they were in states where the same minimum wage was paid to all workers.

The National Restaurant Association has attacked the report as “biased and unrigorous,” and Cornell professor Michael Lynn, an expert on tipping (and supporter of abolishing the tipped minimum wage), noted that other factors could explain the correlations. However, the EEOC has targeted the restaurant industry as the “single largest” source of sexual harassment claims, and a 2011 MSNBC review of EEOC data revealed that from January to November 2011, nearly 37% of all EEOC charges by women regarding sexual harassment came from the food service industry. Some academic literature supports the “potential connection between tips and harassment.” It is easy to see why. Workers who depend on tips are vulnerable.

Bias and Lack of Relation to Service Quality

Many proponents of tipping cite basic fairness: better servers deserve – and earn – better tips. Unfortunately, the situation is not that clear-cut. According to studies by Professor Michael Lynn, tips are only “weakly related” to service quality. This weak relation is particularly noticeable when it comes to race and gender.

Extensive research by Professors Lynn and Zachary Brewster indicates that “both white and black restaurant customers discriminate against black servers by tipping them less than their white co-workers.” This discrimination is not related to poor service quality – quite the opposite. After the quality of work was taken into account, “the disparity between tips given to black and white serves was enhanced rather than attenuated.” Attractiveness-related gender disparities also exist. Another study by Professors Lynn and Tony Simons found that “attractive waitresses earned larger sales-adjusted tips than did less attractive waitresses,” but attractiveness “had no effect on the tips of waiters.”

Discrimination is not limited to the restaurant industry. A New Haven taxi industry study found that, on average, customers tipped African-American cab drivers one-third less than they tipped white cab drivers. In addition, African-American cab drivers were 80% more likely to receive no tip than were white drivers. There is reason to believe that this discrimination plays out along platforms in the sharing economy, too.

Conclusion

All of this points to what might seem a foregone conclusion: abolish tipping. Several restaurants have already done so, and have raised wages to supplement the income that servers would have otherwise received in tips. These restaurants report positive results, including higher overall wages, improved service, superior food, and better business. That said, tipping remains deeply ingrained in American culture, and its complete abolition seems unlikely to occur anytime soon. Eliminating the tipped minimum wage but permitting customers to tip, if they so choose, seems like a natural, albeit imperfect solution. Doing so would follow the successful model in most European countries. Although it would not fully remedy the effects of bias, it would at least alleviate workers’ vulnerability and dependence on tips.

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