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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Up with Minimum Wage – Hell, Yes! How about Hospitality Workers, Too?

New Orleans    President Obama in the State of the Union address called for an increase in the federal minimum wage, which has been stuck for the last four years at $7.25 per hour.  The President has done some bargaining, hopefully not with himself again, but the target for his proposed increase is $9.00 per hour, rather than the $9.50 he had proposed in his first term.

I’m not for quibbling though if he is really serious and finally willing to do the work to not just get an increase in the minimum, but also finally win indexing to the cost of living, which would mean low wage workers would not keep watching their paychecks shrink in the long, multi-year stretches of waiting for Congress to finally remember they need a raise.  The last serious argument for indexing was during Robert Reich’s tour at the Labor Department, but that notion was pulled back for the health care push in the first Clinton term.

Invariably, the increase would be over a number of years, rather than in one big gulp.  Maybe a bump to $8.00, then $8.50, and finally $9.00 over a couple of years, putting workers at $9 by the end of 2015 or starting 2016, more likely.  With indexing kicking in even at 2% or so with current inflation, the value of the $9.00 would stay evergreen.

The one thing I did not hear was a call to finally push back the lobbyists for the hotel and restaurant associations, and move the needle forward on tipped employees, who have been stuck around $2 bucks per hour over the last few bumps in the Fair Labor Standards Act (FLSA) governing the minimum wage.  Yes, they are supposed to get to the $7.25 figure through tips, but the enforcement is weak, and that’s putting it mildly, and the confusion for customers is huge, since most have no idea what kind of pittance they are earning.  The fast legion of tipped employees are not cocktail waitresses or brunch waiters in upscale breakfast places in New York City making $300 in tips per shift, but are humping it to make enough to bust past $8 per hour.

I will avoid ranting about my ever unpopular argument that tips are one of the major factors holding back hospitality workers from fair wages, solid unions, and dignity and respect on the job.  Nor will I list, as I have often done, the number of countries that scoff at tips as disrespectful or even refuse tips and turn them back to the customer when afforded.

Whether tips are an abomination for workers or not, the minimum wage for all the growing millions of hospitality and service workers classified as tipped employees desperately needs to be included significantly in any serious proposal for raising the minimum wage.

How about targeting the benchmark at 50% of the wage set per hour for non-tipped employees?  That would mean $4.50 for tipped workers when the FLSA number is $9.00 and so forth.

Time to move forward for ALL workers on this fight.

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