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Tipped Workers Providing Maximal Work for Subminimal Pay

I am so grateful that the quality and variety of Flagstaff’s restaurants have improved over the last 10 years. I have my favorites and have come to know some of the waitstaff with my regular visits, as I am sure you have, too. It’s always nice to see a familiar, friendly face, especially during the summer when the restaurants are busy with transient tourists. The tourists can be friendly, too, and I greatly appreciate what they do for our economy; however, I understand that foreign tourists don’t tip so well. In most of the world, gratuity is built into the price and, if a tip is left, it is much less than the 15 to 25 percent to which we are accustomed in America.

Why do we tip so much in America? Because our tipped workers earn a subminimum wage. Most states use the federal rate of $2.13, while in Flagstaff, thanks to the Minimum Wage ordinance passed in 2016, tipped workers get a minimum of $8 per hour in wages. The law also stipulates that when wages and tips are totaled, the hourly rate must meet the minimum of $11 per hour. By 2026, the subminimum wage in Flagstaff will be gone all together.

For a better understanding of subminimum tipped wages, I spoke with Sylvia Allegretto, Ph.D., economist and chair of the Center on Wage and Employment Dynamics at the institute of for Research and Labor and Employment at UC Berkeley. “In the two-tiered system of the subminimum wage and tips, like there in Flagstaff, that $3 difference is a subsidy of the employer’s wage bill. A part of the official pay (27 percent) is being subsidized directly by the customer.” Allegretto explained that gratuities are no longer tips for good service, but instead they have become a wage subsidy benefitting the employer.

“The restaurant industry is growing fast but has some of the lowest paid workers. They don’t get paid sick leave or paid vacation and most employees need income assistance. Their paychecks are volatile and unknowable for so many factors like weather, scheduling and retaliatory bosses,” Allegretto said. “It’s time to start thinking about making this industry one of higher paying quality jobs.”

Who are these familiar servers that we tip so well? Restaurant Opportunities Centers United provided for me an analysis of Flagstaff’s tipped restaurant workers from the May 2017 Bureau of Labor Statistics data. The demographics are very enlightening: 65 percent are women, mostly white, at a median age of 23, 32 percent of them are between the ages 25-44, 45 percent have some college education, and 62 percent are single mothers. Statistics reveal 44 percent of our tipped restaurant workers are women in poverty and the annual public assistance, food stamps and Medicaid, for our restaurant workers is more than $4.4 million a year. Our familiar waitresses are most likely young, educated parents struggling to make ends meet.

I remember my early experiences as a line cook and dishwasher (I failed at waiting tables) and think about the lives these statistics describe: they work so hard for so little. I asked Saru Jayaraman, president and co-founder of Restaurant Opportunities Centers United and director of UC Berkeley’s Food Labor Research Center, about the social implications of these statistics.

“When one in two Americans works in the restaurant industry at some point in their lives, the industry sets the national standards for what is acceptable in a workplace. That is critical since the subminimum wage for tipped workers is the source of so much sexual harassment in this country. Living almost exclusively off tips leads to economic instability and forces a mostly female workforce to tolerate severe sexual harassment and other inappropriate behavior from customers, managers and sometimes even co-workers,” Jayaraman said. “Seven states have already eliminated the subminimum tipped wage and have higher restaurant sales per capita, higher job growth among tipped workers, the same or higher rates of tipping, and importantly, one half the rate of sexual harassment as the 43 states with a subminimum wage for tipped workers.”

As you may know, Proposition 418 attempts to repeal the minimum wage that voters put in place in 2016. If passed, it will remove the current law that defines tips received by an employee as their sole property and the provision to eliminate the subminimum wage. Our tipped workers have gained a little more income security from the wage ordinance, which, in the long run, benefits us all. Let’s not allow that to be taken away from them. I urge you to vote “No” on Proposition 418, and to tip more; your gratuity is most often not extra; it’s part of their hourly wage. FBN

By Eric Souders

Eric Souders is an Accredited Wealth Management Advisor at Ascendant Financial Solutions. Securities offered through Geneos Wealth Management, Inc. Member FINRA/SIPC Advisory Services offered through Geneos Wealth Management, Inc. and Ascendant Financial Solutions.

The opinions are those of the author and are provided for general purposes and are subject to change without notice. The opinions may not be shared with Ascendant Financial Solutions, Inc. or Geneos Wealth Management, Inc. 

One Response to Tipped Workers Providing Maximal Work for Subminimal Pay

  1. Benjamin M Bethel September 29, 2018 at 12:56 PM #

    As a long-time business owner in the tourism, hospitality, food and beverage industries I find this post interesting. I wish it would have gotten to the point a bit more succinctly, and I wish it would have pointed toward what’s really happening in the Food and Beverage industry nationwide – and worldwide – as we speak. As we’re hitting a point where declining nationwide population is finally upon us, as is the case with many regions in the world, and as we are in an environment with very low unemployment there’s no other option but to optimize efficiencies in the industry. What does this mean exactly? This means that all restaurants will have to go to a hostless, serverless environment. Check in with a tablet upon arrival, or check in ahead of time with apps like NoWait or OpenTable or GoogleMaps or TripAdvisor or other apps that offer these services. Then when you get to the table, you will order via a tablet – this reduces enormous expenses for restaurant owners, it eliminates tipping, it enables patrons to pay and leave more quickly, and it speeds up an operations timeliness of service. Those restaurateurs who adopt this model will see profits increase, will be able to hold menu prices lower due to reduced labor costs and increased efficiencies, and with lower labor costs and without tipping a patron’s total bill for eating out could easily be 30-55% less than the cost of eating out today. That’s an enormous amount of money. Also, a restaurant’s reputation is often based upon service… and let’s be honest here – Arizona is not known for service. Yes, there are great places with great service – but they’re the exception and far from the norm. Personally, I’d rather get in, sit down, order via tablet, have a food runner bring my food to me and then I’d love to pay at the table and leave. We’re getting to that point… without better immigration policies restaurant owners will just continue to suffer…. without lower costs restaurant owners will continue to be strained…. and without servers as part of the formula, running this type of business becomes far easier and far more enjoyable. Let’s see how all of this pans out – but even as a hotelier and restaurateur myself, I support higher and higher minimum wages, minimum 4 weeks’ vacation, and other ‘out there’ ideas…. after all, in this day and age of automation and streamlining processes through technology we still have to create consumers for our products. Without drivers, servers, cashiers, retail workers, accountants, attorneys, engineers and architects – all jobs being replaced by automation and AI as we speak – we’re going to either face mass unemployment or will have to adopt guaranteed universal basic income and restrict work hours per week and increase paid time off per year. It’s either that or 30% unemployment rates by 2022-2025.

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