Would Higher Minimum Wage for Tip-Earners Help or Hurt Struggling Low-Pay Workers?

Hank Kalet | April 7, 2014 | More Issues
Advocates decry current $2.13 per hour as unfair, while restaurant owners say hike would eliminate jobs, might backfire by reducing tips

An increase in the minimum wage for workers who rely on tips to $5.93 — which would make New Jersey’s minimum wage for tip-earners one of the nation’s highest — — is being considered by the state Legislature

New Jersey law currently allows tip workers to be paid $2.13 an hour, but requires employers to pay additional compensation if the employee’s hourly wage and tips do not at least equal the general minimum wage. The federal tip wage is $2.13 and has not been increased since 1993.

The legislation,
A-857, was approved by the Assembly Labor Committee on March 24 by a 5-3 vote. It would increase the wage in two increments, from the current $2.13 an hour to $3.37 on Dec. 31, 2014, and to $5.93 on Dec. 31, 2015. The bill has not been scheduled for a floor vote and its Senate companion, S-1595, has not been scheduled for a Senate Labor Committee hearing.

Some tip-workers, and their advocates, say the increase is needed to stabilize the wages of bartenders, waitresses and others who rely on tips. Advocates say that many in the industry are barely scraping by, with many living below the poverty line.

Restaurant owners and the New Jersey Restaurant Association dispute those claims and say that, where problems exist, they are failures of enforcement. They also say that an increase in the wage will ultimately hurt tip workers by forcing businesses to reduce hours or alter wage scales to compensate for higher costs.

Labor Committee Chairman Joseph Egan (D-Middlesex), a bill co-sponsor and one of five Democrats voting in favor, called it an issue of fairness.

“Workers who depend on tips are at the mercy of consumers,” he said. “Not everyone is nor can afford to be a good tipper. Raising the minimum hourly wage for these employees ensures they are taking home an adequate paycheck to provide for themselves and their families.”

Assemblyman Jay Webber (R-Morris), one of three Republicans on the committee to vote against the bill, said in a press release that the bill, by nearly tripling the tip wage, calls for a “much more dramatic increase than what New Jersey put before the voters last year,” when the state minimum wage was increased from $7.25 an hour to $8.25.

“This bill would increase costs to employers without a substantial increase to employees,” because employees already are supposed to be guaranteed the regular state minimum wage, Webber said.

The tip wage has become a hotly contested issue nationally, with national Democrats linking an increase to President Barack Obama’s call for the national minimum wage to be increased to $10.10 an hour. U.S. Sen. Tom Harkin (D-Iowa) has introduced federal legislation that would tie a tip-wage increase to the federal minimum wage increase – both increases would be phased until the regular minimum was $10.10 and the tip-wage was $7.10.

Nationally, Democrats are hoping to pass a bill this year, but observers say it is unlikely to get through the House of Representatives.

Would Christie Veto Wage Hike?

Its prospects in New Jersey – where about 315,000 people work in the hospitality industry — are unclear, though both houses of the state Legislature remain in Democratic control. Gov. Chris Christie has not said if he would sign a tip-wage increase into law, but the governor did veto an increase in the regular minimum wage from $7.25 to $8.50 in 2012, saying it was too much and that an indexing provision tying the minimum wage to the rate of inflation would harm businesses. The Legislature responded by putting the minimum wage on the ballot in 2013, where it was supported by 61 percent of voters. The minimum wage increased to $8.25 an hour on Jan. 1 and will increase annually based on the cost of living.

Seven states do not have separate minimums for tip workers, and pay workers who receive tips and other gratuities the full minimum wage. Thirteen states, plus New Jersey, pay tip-workers the federal minimum of $2.13 an hour. The remaining 29 states have tip-wages ranging from $2.23 to $7.43. Delaware has a tip-wage of $2.23, while Pennsylvania’s is at $2.83 and New York’s is between $4.90 and $5.63, depending on the job.

Assemblywoman Shavonda E. Sumter (D-Passaic), a co-sponsor and Labor Committee member who voted in favor of the bill, called the current tip wage “a paltry sum that has been frozen for more than 20 years and is lower than most states.”

She said all of New Jersey’s neighboring states have higher tip wages and that it’s “time for New Jersey to catch up.”

The New Jersey Restaurant Association disagrees. It says the increase in the standard minimum wage is enough to help restaurant workers, because state law requires businesses to bridge the difference when the combination of a worker’s tips and their base wage falls below the state minimum.

Marilou Halvorsen, president of the NJRA, said most restaurant workers make more than the minimum wage and that it is a “very rare occurrence” when they fall below. Even when they do “work a shift and it is so slow that no one comes in,” she said, workers “are by law guaranteed to get $8.25 an hour. The employer is responsible to bring you up to that $8.25 an hour.”

Amy Coss, owner of Milford Oyster House restaurant in Hunterdon County, said the issue is enforcement. Workers should call the state Department of Labor report when they are being shorted wages.

“Every waiter or waitress is guaranteed the minimum wage,” she said. “If they are not making it, then there is a problem.”

She describes Milford Oyster House as a “white-table-cloth restaurant” with a tavern area. Menu prices range from $6 to $13 in the tavern and up to $34 a plate for sushi-grade tuna in the restaurant. It has 100 seats and she employs about 20 people. She said the wait-staff probably earns $25 an hour in tips and wages.

“I am typical for my area, in Hunterdon,” she said. The servers at different restaurants talk with one another, she said, and her employees say “that they all make about the same amount of money. We don’t have a tip-wage problem here.”

Anastasia Braucht, who works as a bartender at a small restaurant in Bricktown, said she makes what she describes as “decent money,” but that there are no guarantees.

“There is no stability, nothing,” she said. “It is very rare when jobs do match to the minimum wage because, if we complain, we are going to lose our job altogether. Are you going to complain for the extra $3 or $4 when you could lose your job?”

Braucht said the industry’s complaints ignore that tip-wages have not been increased in 21 years, so a $3 to $4 increase is appropriate.

“We’re not asking for the minimum wage,” she said. “And we’re not asking for it all right away. I don’t think it is that substantial – we are the face of the restaurants. Why would we want to shut down the restaurants where we want to work? We are just asking the wage to be increased and to have some stability in our jobs.”

Halvorsen said some of the NJRA’s smaller members view the increase existentially. They are afraid that the increased costs could force them to close, she said.

“They were dealing with an insurance increase and rising food costs,” Halvorsen said. “Between labor costs and just food, you are over 50 percent of your costs, that leaves what’s left to pay the mortgage, insurance, utilities, repairs, benefits and everything else. It is a very slim profit margin that restaurants operate on.”

Coss agreed. She says an increase in the tip-wage would have a direct impact on her business. She said she would move some employees from tips to the minimum wage, which will cost her more in salary but less in payroll taxes (tips are supposed to be part of the payroll tax calculation). That could result in those employees – mostly busboys – earning less.

Would It Backfire on Workers?

Coss also thinks the increase could affect tips.

“Once all the news media coverage happens and customers are realizing that servers are making more money, they may tip less,” she said.

She said she would also have to raise menu prices to cover new costs, which could have an effect, as well, as customers seek to save money on meals.

“At a certain level, you meet price resistance,” she said.

Halvorsen said the NJRA conducted an informal survey of members, making sure to include a range of restaurant types – “the white-linen-tablecloth restaurants to the small independent BYOB and pub types” – and found that the average tip employee is making about $16 an hour.

Mary Gatta, a Rutgers professor who works with Wider Opportunities for Women, an advocacy group based in Washington, disputes the NJRA figure. She said 90 percent of servers and tip-workers do not earn enough money to be considered economically secure. She defined economic security as “meeting all your basic needs — rent, health care, food, taxes, child care, and being able to save a little for retirement and emergencies.”

“Restaurant workers are earning a base wage of $2.13, which translates to less tan $5,000 annually,” she said. “Often, they don’t get a paycheck, because when you take into account the taxes they have to pay, they have a negative net.”

Gatta is the co-author of a report issued in February, “Down the Shore, Everything’s (Not) All Right.” The report surveyed 100 restaurant workers in Atlantic, Ocean and Monmouth counties in the summer of 2013. The report found that 82 percent of surveyed tip workers reported earning less than the federal minimum wage in 2011. The report also found that, “at the height of the summer season,” which is the busiest time for restaurants at the Shore, more than a third of workers said they earned less than $450 in tips a week and 60 percent said they earned less than $600.

“Even in the heat of the summer, in the busiest months, many workers are not at economic security,” she said.

Gatta says the tip-wage acts as a subsidy. Rather than the employer paying servers and bartenders a fair wage, they are leaving it to consumers to pay what they want, she said.

“It allows employers to pay workers less and then asks us, as customers, we are supposed to make up the difference,” she said.

Customers, however, are under no obligation to leave a tip, she noted.

“The server can’t force you to tip,” she said. “There is no guarantee that you are going to get a tip, no law that says you have tip.”