Tipping is Not Only Bad for Workers, It’s Bad for Legal Businesses

tipsLittle Rock    Sara Jayaraman, the co-director of Restaurant Opportunities Centers United and director of the Food Labor Research Institute at the University of California at Berkeley recently wrote an impassioned op-ed largely trying to put pressure on Andrew Cuomo, the Governor of New York, to extend the increase in wages from fast food to all workers in the state. She made many excellent arguments including the racialized history of tipping, the progress in Europe in moving away from tips, and the low waged ghettos of largely women workers dependent on tips and often vulnerable because of that dependency, One argument she didn’t make is that by eliminating tipping as part of food service workers pay, we would be bringing the restaurant industry out of the gray market of dodgy, illegal wage practices and putting all businesses on an equal legal footing.

The Fair Labor Standards Act is clear. When tips are part of the income paid the worker, the employer is required to pay withholding, social security, unemployment, and workman’s compensation on the full sum of the wages paid. As every employer knows the full package often is 25% to 30% more than the wages themselves. The FLSA requirement is not just for restaurants using the $2.13 per hour tip credit wage and offset the gap between $2.13 and the federal minimum of $7.25 per hour my adding the tips in, but for all workers no matter what the hourly wages paid and what level of tips are collected.

Logically and justly, this is the way it should be obviously. A food service worker should have the same opportunity for unemployment as other workers and the same opportunity when they reach retirement to collect on their full and actual wages – including tips which often exceed their hourly pay – when they are elderly. The Department of Labor doesn’t live in a fantasy world, and there is no pretense that even a fraction of employers are paying the full package. Basically, they look the other way. There have been enforcement strategies where there has been a mandated percentage, starting at 8%, paid on the assumption of unreported tips dating back more than 30 years. Ironically, there are more rules and enforcement about employers keeping their hands out of the tip pool than there are rules to make employers pay what they are required in benefits for their workers on the tips.

All of which puts legal employers at a huge financial disadvantage in the market. Fair Grinds Coffeehouse in New Orleans is a 100% fair trade, small, social enterprise L3C business, supporting ACORN International’s community organizing in Latin America, India, and Africa. We pay a non-tipped minimum wage of $7.25 and a tip pool adds another $6 to $8 dollars per hour, depending on the season. We pay, as required, the full package of benefits to our workers. We are, in fact, members of ROC, but we are at a huge disadvantage in the marketplace as well.

Arguably, the straight wage is compensated by our community of customers that buy our coffee, tea, and food. The tips are hypocritical gratuity, where on both sides of the transaction the customer and worker pretend it’s a gift, knowing full well that it’s a vital part of wages. Fair Grinds though has no income stream that gives us the money to pay our 30% legal obligation on the tipped part of the wages though. We in effect are subsidizing the “gift” of the customer and the wage of the worker.

Meanwhile Starbucks acts like it’s a hero for paying $10 per hour and like almost all restaurant employers, looking the other way on the tips. And, the small time competitors just look the other way and hope they don’t get caught, while quietly and directly exploiting their workers. Danny Meyer, the big whoop high-end New York restaurateur, has gotten huge publicity for raising wages and eliminating tips at his restaurants and doing so by raising prices. Not sure why he gets praise for this, since he just saved his operation money, because if he were operating legally like Fair Grinds he would have been paying the package out of his own pocket, and now by raising prices he is paying his workers legally out of his customer’s pockets and clearing more money by doing so.

While people pretend to be oblivious of how workers’ pay and employers’ obligations work, social enterprises and straight shooters like a Fair Grinds who are not in a market position to simply charge a premium to cover the costs that our competitors ignore, businesses rip-and-run over their workers and their wages with the implicit permission of lax and lazy government enforcement and explicit support and pretense of their customers.

We need to end tips to put all workers on solid footing and all businesses that employ them on the same even playing field.

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Discovering Precarious Work and “Hotel Mama”

fast-food-strike-AP46472623_620x350Charlotte         Is it just me or is the mainstream starting to discover precarious employment?   Maybe it’s the “fight for $15” push that’s opening eyes?  Maybe it’s a residue of the Occupy 1% theme?  Maybe it’s the yawning gap between the rich and the rest of us?  I’m not sure, but I know two things.  One, that, like spring, tales of the precarious are starting to sprout up everywhere, and, secondly, that it has to be a good thing, no matter how odd some of the pieces come out.  None of this is George Orwell down and out in London and Paris, but most of it is more a long look through a telescope at Mars full of observations with very limited, well gloved participation at most.

The New York Times of course has the occasional story of a fast food worker trying to live and raise a family on barely minimum wage, but that’s hardly new.   Recently though, The New Yorker ran a story by William Finnegan, their esteemed reporter on all things south of the US border, where he followed an informal mineworker – one of an estimated 400,000 — in the gold fields of Peru at 17,000 feet who tried to make a hardscrabble living as his fuse burned to an early death.  Elsewhere in the magazine for the life of me it almost seemed that the reader was being encouraged towards at least a glimmer of empathy for Somalian pirates because of the dire economics and precarious prospects for making a living in that failed state.  Interestingly, the business end of piracy seems to be small time, marginal workers hardly a half-step above precarious making “investments” in the success of the ransom demands.  Don’t misunderstand me, I’m not recommending this for marginally employed workers, but the New Yorker’s door opening for their readers into the other worlds of work outside Manhattan is truly fascinating!

The Economist recently expressed concern for the increasingly precarious situation for Japan’s working poor where even with almost full employment, defined at 4% or less, a record-level 16% of the population is now living on less than half the national median income.  Bestsellers are being written in this orderly society on how to live on less than $16700 per year.  American low-wage workers would love to read some books with valuable advice there!   The bottom line is irregular employment.  The Economist noted that “the number of irregular workers – often earning less than half the pay of their full-time counterparts with permanent employment contracts – has jumped to over 1.5 million.  Casual and part-time employees number nearly 20 million, almost 40% of the Japanese workforce.”

Many reports are now wondering, “How are people living like this?”

In Japan, many, especially younger workers, are living at home with parents as their primary housing and welfare agency.  That’s not unusual it seems.   Precarious employment is forcing huge numbers of younger workers around the world into what is being called “Hotel Mama” in Eastern Europe.  In the US 15% of adults 25 to 34 live with their parents.  In Slovakia 74% between 18 and 34 and 57% between 25 and 34, in Bulgaria 51%, Romania 46%, Serbia 54%, and Croatia 59%.

As more and more observers discover the ubiquitous nature of informal employment as if this is a new exploration into a previously unknown world, it’s a good thing, though I have to wonder how they avoided it so long.  Unfortunately, the observations decoupled from participation, still seem woefully short on solutions or even recommendations, even as the recognition of the growing crisis increases.

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