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What is the Tipped Subminimum Wage?

A “subminimum wage” is a wage that is less than the state or federal mandated minimum wage. Federal law allows companies to pay the subminimum wage to certain groups of workers, including tipped workers, who represent the largest group of workers paid the subminimum wage. A tipped worker is defined as anyone whose occupation regularly and customarily receives $30 per month in tips. Employers of tipped employees are only required to pay $2.13 an hour in direct wages as long as that amount combined with tips equals the federal minimum wage, but it often falls short. In many states the state subminimum wage for tipped workers is higher than the federal minimum wage. However, in 38 of the 43 states that allow a subminimum wage for tipped workers, the subminimum wage is $5 or less.

With a federal tipped subminimum wage frozen at $2.13, these workers can earn as little as $4,430 a year for full-time work, with the remainder of their income solely derived from tips. Although employers are required to ensure that workers are paid at least the overall federal minimum wage of $7.25 an hour, the US Department of Labor reports that 84% of employers investigated violate the regulations created to protect tipped subminimum wage workers.  Consequently, tipped workers in the 43 states that allow the subminimum wage are more than twice as likely to live in poverty and rely on Medicaid than the rest of the workforce. These low wages affect a workforce that is majority women and disproportionately include people of color.

Why End the Tipped Subminimum Wage?

Every person who works in America should be paid at least a full, fair minimum wage from their employer. The tipped subminimum wage exacerbates income, racial, and gender inequities that harm workers and present significant business risk. Paying workers a full minimum wage is just, equitable, and has financial benefits for workers and businesses alike.

The subminimum wage for tipped workers is a legacy of slavery that emerged following Emancipation to exploit recently-free enslaved Black people, particularly Black women. Today, the practice of paying workers a subminimum wage and requiring them to rely on tips serves to uphold systemic racism because workers of color earn far less in tips than their white coworkers, due to both segregation of workers of color into more casual restaurants and customer bias in tipping . For example, Black women earn only 60 percent of what white men earn in the same front-of-house positions. Given these disparities, paying a submininmum wage may be a direct contradiction to a corporation’s anti-discrimination policies and increase the risk of employee discrimination claims.

Tipped workers are twice as likely to experience sexual harassment compared to states that pay all workers the full minimum wage. The subminimum wage forces a workforce of majority women, and disproportionately women of color, to tolerate inappropriate customer behavior to feed their families in tips, resulting in the restaurant industry having a rate of sexual harassment that is five times higher than any other industry. This heightened risk of sexual harassment increases the likelihood of employee sexual harassment claims and may lead to other costly outcomes as well, such as high worker turnover and a workforce with low morale.

The COVID-19 pandemic has worsened the already-dire circumstances facing tipped workers. In the last six months, nearly 1 in 4 workers who lost their jobs worked in the restaurant industry. Despite massive layoffs, 60 percent of workers surveyed reported being unable to access unemployment or unsure whether they could, and many were denied because they earned too little to claim benefits. Amid the continued pandemic, the subminimum wage has also become a critical barrier to ensuring public health, as restaurant workers forced to rely on diminishing tips fear enforcing safety measures upon the very customers who pay a substantial portion of their wages. Worst of all, 40% of workers surveyed reported a notable change in sexual harassment during the pandemic, with hundreds of women reporting that male customers have asked them to remove their masks so that they could judge their looks and therefore their tips on that basis.

In an era of increasing public awareness of gender, racial, and economic justice, the practice of paying a subminimum wage that exacerbates poverty and inequality among vulnerable populations is bad for business. In fact, 60% of respondents to a recent survey reported that they would boycott a brand for racial justice reasons. At the same time, paying the full minimum wage has tangible financial benefits for businesses, including: higher average profits, higher average employment growth for tipped workers and higher average organizational growth, lower poverty rates among tipped servers, increased worker morale, worker health, and lower turnover rates, all contributing to better business for employers.

What is the Livable Wage Campaign?

The Livable Wage Campaign launched in May of 2020 and is a joint effort between One Fair Wage and Adasina Social Capital. Our goal is to push publicly traded companies companies to end the subminimum wage for tipped workers in their companies, and pay all workers a full minimum wage with tips on top. This project was launched with a public statement written to publicly traded companies by  a coalition of over 65 institutional investor groups representing over $538 billion in managed assets, calling on these companies to end the subminimum wage for tipped workers, or risk divestment. This coalition includes Everence and Praxis Mutual Funds, Boston Trust Walden Funds and Wealth Management, Seventh Generation Interfaith Coalition, Trillium Asset Management, and Abacus Wealth Partners.

Methodology

In order to launch this database, our team reached out to dozens of large companies to ask if they pay any of their employees the subminimum wage for tipped workers. We included companies who were listed in publicly available databases that met our criteria: U.S. based publicly traded companies that are listed as full service restaurants and, therefore, might employ tipped workers.

In our initial and subsequent correspondence with companies we asked companies to respond to our inquiry with one of three responses; 1) Your company has ended or never used the practice of paying a subminimum wage for tipped employees. No tipped employee receives the subminimum wage for tipped employees in any location or subsidiary 2) Your company does currently use the practice of paying a subminimum wage for tipped employees in any location or subsidiary, and 3) Your company does currently use the practice of paying a subminimum wage for tipped employees in any location or subsidiary, but commits to ending this practice by December 31st, 2020. We explicitly informed companies that, if we did not receive a response to our inquiry within the specified timeframe, then a lack of response would be interpreted as an indication that the organization likely does pay a subminimum wage to tipped employees, as this is statistically the case for the majority of U.S. full service restaurant companies who do not exclusively operate in CA, NV, AK, MI, OR, MT and WA, where employers are required to pay the full state minimum wage before tips.

When companies indicate that they do pay a subminimum wage to tipped workers in any location or subsidiary, they are listed as “Pays a Subminimum Wage to Tipped Employees”. When companies do not respond to our inquiry they are listed as “Likely Pays a Subminimum Wage to Tipped Employees”. They are listed as such because of clear written communication that a lack of response will indicate that they do pay the tipped subminimum wage. If companies indicate that they have ended or never used the practice of paying the subminimum wage for any employee in any location or subsidiary then they are listed as “Pays the Full Minimum Wage to Employees with Tips on Top”. If the company indicates that they currently pay the subminimum wage for tipped employees, but commits to ending the practice by December 31, 2020, they are listed as “Pays a Subminimum Wage to Tipped but Has Committed to Drop the Practice”. If the company does not confirm that they have ended the practice by December 31, 2020, they will be listed as “Pays a Subminimum Wage to Tipped Employees” until a policy change is made.

This website is being used to actively track company responses to our inquiries and update any policy changes that may be made regarding the subminimum wage for tipped workers in a timely manner.

If you have any questions or suggestion please contact us at info@liveablewagecampaign.com

     Endnotes:

  1. Department of Justice, Wage and Hour Division, “Questions and Answers About the Minimum Wage,” Department of Justice (2020).
  2. One Fair Wage, It’s Time to End the Subminimum Wage,” One Fair Wage (2019).
  3. One Fair Wage, “Worker Misclassification and One Fair Wage: A White Paper on the Perils of Replicating AB 5 in Two-Tiered Wage States,” University of California, Berkeley Food Labor Research Center, One Fair Wage (March 5, 2020).
  4. Ibid.
  5. Saru Jayaraman, “Forked: A New Standard for American Dining,” Oxford University Press (2016).
  6. Michael Lynn et al., “Consumer Racial Discrimination in Tipping: A Replication and Extension,” Journal of Applied Social Psychology, 38(4), pp.1045–1060 (2008).
  7. Ibid.
  8. Kari Paul, “Do Americans tip people of color less money?,” MarketWatch (October 31, 2017).
  9. Ibid.
  10. American Community Survey (ACS), 2012-2015, “Calculations by the Restaurant Opportunities Centers United (ROC-United) of civilian employed tipped and general population demographics based on Ruggles et al., Integrated Public Use Microdata Series: Version 5.0 [Machine-readable database],” Minnesota Population Center (2010).
  11. Restaurant Opportunities Centers United, “The Glass Floor: Sexual Harassment in the Restaurant Industry,” Restaurant Opportunities Centers United (October 2014).
  12. National Sexual Violence Resource Center, “Ending Sexual Assault and Harassment in the Workplace,” National Sexual Violence Resource Center (2020).
  13. Associated Press, “People of color, women shoulder front-line work during pandemic,” NBC News Website (May 4, 2020).
  14. One Fair Wage, “A Persistent Legacy of Slavery: Ending the Subminimum Wage for Tipped Workers as a Racial Equity Measure,” University of California, Berkeley Food Labor Research Center, One Fair Wage (August 2020).
  15. Ibid.
  16. Lily Zeng, “We’re Entering the Age of Corporate Social Justice”, Harvard Business Review (June 15, 2020).
  17. First Insight, “First Insight: Treatment of Essential Workers Is Impacting Consumer Shopping Decisions,” Business Wire (April 14, 2020).
  18. Edelman, Trust Barometer Special Report: Brand Trust in 2020, Edelman Website (June 25, 2020).
  19. Brand Finance, “Global Tangible Finance Tracker,” Brand Finance (November 2019).
  20. One Fair Wage, “Better Wages, Better Tips: Restaurants Flourish with One Fair Wage,” Restaurant Opportunities Centers United (2018).