Why Undertipping Makes You A Real Jackass

Jul 14, 2014 @ 11:03am


The minimum wage for tipped workers has remained stagnant for 23 years:

Tipped workers have been getting short-changed for years. At least that’s what the gap between the federally mandated regular minimum wage and federally mandated tipped minimum wage would suggest. When the tip credit, as that difference is often called, was created in 1966, it split hotel, restaurant and other service industry salaries up so part was paid by their employers and another part was paid by their customers. The legislation was intended to protect service industry workers who had previously been unprotected under the Fair Labor Standards Act (FLSA). And the split was originally 50-50 – meaning employers and customers shared the cost of each tipped worker’s minimum salary.

But the burden is increasingly falling on America’s restaurant goers and other service industry customers. “Today this two-tiered wage system continues to exist, yet the subsidy provided by customers in restaurants, salons, casinos and other businesses that employ tipped workers is larger than it has ever been,” a new report (pdf) by the Economic Policy Institute says. The tip credit has surged from fewer than $3 in the late 1980s to more than $5 today, largely because the tipped minimum wage hasn’t increased in 23 years.

Jul 14, 2014 @ 3:20pm

Ctd …

A reader writes:

I tip fairly generously and don’t really mind tipping when I go out. But why does the blame on low restaurant worker wages always fall to the jackass diner? Why not on the jackass restaurant owner? Is there any other industry where we put none of the blame for wages on the owner? If I had my choice, we would eliminate all tipping and just raise the prices to make up the difference. (If you get a chance, listen to the great Freakonomics podcast on tipping.)

Another also takes exception:

Excuse me? The jackasses in this situation are two:

one, the politicians who short-changed professions when writing minimum-wage laws. If they add waiters to the law, half (or more) of this problem goes away.

The other are the restaurants, who use the fact that tipping is required to falsely advertise prices. Force them to pay their waiters a proper wage and throw in requiring taxes to be included in the price, and then we’ll talk. But when a restaurant falsely claims I can eat there for, say, $20 per person, and it turns out that after taxes and, yes, tipping, it’s more like $35 … I think I’m entitled to feel cranky that I was lied to.

As to whether I’m an undertipper? Well, the target keeps moving, doesn’t it? I was used to 10%. Now it is 15% minimum. Soon, it sounds like it will be 20%, with various interest groups already calling for 25%.

Since the above jackasses won’t do their jobs, I’m the one left holding the invisible bill to pay these people? And I still get called a jackass for doing so? This is the primary reason why I have stopped going to places that have waiters, if I can help it.


Tipping is another cost-of-living expense that competes with the cost of living raise that regular workers are not getting. I tip pretty high even for bad service (which I get more often than good service, mostly because restaurants are understaffed to save even more money). So the headline should be: “restaurants are being jackasses for being like every other company and squeezing the low person on the totem pole.”

One thing to consider: if restaurants were forced to pay a higher wage, they would likely compensate by raising the price of their meals, especially since most restaurants operate on really tight margins. So the customer could be paying the same amount in the end – less tip, but a higher base price. Another reader changes tack:

Labor lawyer here. The tip credit is one of the most misunderstood areas of wage and hour law. The tip credit only covers what the employer has to pay the employee. The Fair Labor Standards Act (FLSA) still requires that the employee walk away with minimum wage for the week. So, for example, where the tip credit minimum wage is $2.13 this does not mean that employees at these joints earn just $2.13 per hour; they are required to be paid no less than full minimum wage. That means if their tips fall short of minimum wage, the employer has to make up the difference.

So an employee at a cheap diner may sometimes make more than minimum wage in tips, and sometimes less, forcing the employer to make up the difference. An employee at a high-end restaurant will often make more than minimum wage once tips are included, but the employer only has to pay them $2.13 per hour. The employer has to cover the difference to whatever the local minim wage is, so any raises to minimum wage are also raises for tipped workers (e.g. once Seattle’s minimum wage reaches $15 per hour, employers will have to make sure their tipped employees leave with $15/per hour).

As such, it really shouldn’t matter whether we ever raise the tipped minimum wage again, because the law already requires that tipped workers receive regular minimum wage at the end of the day. Instead we can focus on raising the minimum wage, or expanding the earned income tax credit, or both.

In practice, however, this is more complicated because there is a lot of labor law violations in the sectors where tipped workers work, both with employers underpaying employees and employees under-reporting tips. Raising the tipped minimum wage might ensure that tipped workers get paid a certain amount on the books. It often strikes me as a bit of a misguided to address issues of fraud and under-reporting with a new minimum wage, instead of better protections against fraud and wage theft themselves, though it seems that some of this misguided thinking comes from the fact that people believe that tipped workers are only entitled to $2.13 in minimum wage.

Jul 16, 2014 @ 10:31am

Ctd …

Like Mr Pink:

Readers continue the thread:

I hope Dishheads aren’t overlooking the fact that institutionalized tipping constitutes a progressive – yes, progressive! – anti-jackass tax of sorts. Conspicuous consumption compels many of those who can best afford to subside service industry jobs to do so. Those who can’t, won’t, and let’s be honest: everyone goes into restaurants knowing what’s expected. Anyone who says they’re being lied to about bottom line prices is simply too proud to admit they’re being cheap.

Academics can argue until they’re blue in the face about the theoretical benefits of eliminating tipping, and perhaps higher-class restaurants where published academics like to dine wouldn’t be impacted as those staffs tend to be well-trained, experienced, and highly professional. But would you really eat at greasy spoons and dive bars where everyone was stuck working for the same wage regardless of performance? I sure as hell wouldn’t, and no one should underestimate the good vibes that come with knowing you’ve given a big tip to someone who truly deserved one, doubly so when you’re pinching your own pennies.

Another focuses on the issue of fudging income:

As one reader mentioned, many tipped workers under-report their tips, allowing them tax-free income. (I’ve always mildly resented how easy it is for the waiters I know to do this, but since none of them are getting rich waiting tables I don’t get too agitated about it.) However, there’s a real downside for the under-reporters that many of them (especially young people) rarely appreciate: When they apply for a loan it is hard for them to prove adequate income, and when it comes time to collect Social Security retirement income they will show lower lifetime earnings and receive a smaller check as a result. In the big scheme of things I suspect most tip earners would be better off getting paid a regular minimum wage, perhaps with modest tips allowed as per the European approach.

Another refines an earlier point:

Your labor lawyer reader wrote, “The employer has to cover the difference to whatever the local minimum wage is, so any raises to minimum wage are also raises for tipped workers (e.g. once Seattle’s minimum wage reaches $15 per hour, employers will have to make sure their tipped employees leave with $15/per hour).” Point of fact: the state of Washington’s state minimum wage – higher than the national – does not include a tip credit. So a server makes regular minimum wage, plus tips.

Another has more on state laws:

There are a few states, including California, where tipped employees are subject to the same minimum wage laws as everyone else. When you go out to eat in these states, the social expectations in terms of tipping are exactly the same as everywhere else. I’m sure most people aren’t even aware that the law is different. So in this instance, yes, the restaurant is paying its servers more, but it does nothing to relieve customers of the additional 15- to 20-percent cost. (In fact, it may be more expensive to tip here in California because, as you pointed out, higher labor costs may lead to higher-priced menu items and we calculate tips as a percentage of those more expensive items.)

Another channels Mr White:

I will leave it to others to hash out the micro- and macro-economic pros and cons of tipping. I just want to give a little recognition to the waitresses – and it is almost always waitresses – slinging coffee, eggs, and pancakes on the breakfast shift in every town in the U.S. Working the breakfast shift is a hard, physically grueling job. But, because breakfast is cheap, breakfast servers are unlikely to make much in tips – even if people are tipping 15 percent. A good breakfast waitress can get the whole day started right. So, tip generously.

(Thumbnail photo by Flickr user Monochrome.)