Questioning wage law built on the kindness of strangers

Wondering how we got a separate base for tipped workers

April 18, 2014|Dan Rodricks

I want to thank Mr. Sean Malone, the Annapolis lobbyist, for getting me to look a little deeper into something we generally regard as acceptable without giving it much thought — the base wage for tipped workers.

In my column of April 9, I reported being underwhelmed by the widely hailed "progressive" accomplishments of the 2014 General Assembly. Democratic senators and delegates pat themselves on the back for increasing the minimum wage to $10.10 an hour, but they stretched the increase over four years, to 2018, when the gain will be meaningless.

Malone, who represented restaurant owners during the legislative session, pointed out incorrect words in this sentence: "The minimum wage increase comes with exemptions for certain seasonal employers ... and no increase for tipped workers; their minimum stays at $3.63 per hour."

Instead of "their minimum," I should have said, "Their base wage stays at $3.63 an hour."

Under the law, all workers are guaranteed the minimum wage ($7.25 now, $10.10 by 2018). As Malone noted: "A tipped worker's employer is required to make up the difference between $3.63 an hour and the minimum rate if an employee does not receive that difference in tips. No tipped worker is legally paid a flat $3.63/hour rate."

Thank you very much. Important distinction noted.

But, while we're on the subject, a couple of questions, if you don't mind: Why do we have a separate base wage for tipped workers? How did we get to a place where customers are presumed to make up the difference between a legally established base wage and the legally established minimum for certain workers?

Has it always been thus?

"No, actually," says Alan Benson, an assistant professor in the Carlson School of Management at the University of Minnesota. Among other things, he teaches a graduate course in benefits and compensation.

Benson says that, while Congress established the federal minimum wage in 1938, the separate base wage for tipped workers did not come along until the 1960s, with an amendment to the Fair Labor Standards Act. For the first time, the law covered lodging and restaurant workers and provided for a "tip credit," allowing employers of those workers to take into account tips toward meeting their minimum wage obligations.

Unions lobbied to get hotel, motel and restaurant workers covered under the act; the industries, long opposed to those workers getting the minimum wage, agreed to the tip credit.

"It was considered a way of leveling the playing field between minimum wage workers who got tips and minimum wage workers who didn't," says Benson, explaining a rationale for the system. "Otherwise everyone would want minimum wage jobs that paid tips. ... Why make the minimum wage when you can make minimum wage plus tips?"

So Congress established the base wage for tipped workers in 1966. The federal base wage has been frozen at $2.13 an hour since 1996; the $3.63 an hour is the Maryland base wage. While employers are supposed to guarantee that tipped workers earn at least the minimum wage ($7.25 an hour), labor advocates and some government studies have shown violations of the law common and enforcement rare.

I come back to my questions: Why do we accept that customers will always make up the difference with tips? Why should "the kindness of strangers" — generous in some seasons of some years, not so in others — remain part of the nation's fundamental wage law?

And aren't restaurant and hotel workers worth $7.25 an hour (the present federal minimum) plus whatever they can earn for providing great customer service?

Is this system in place because of logic or because of lobbyists?

"Allowing employers to take credit from customers' tips toward meeting the minimum wage obligation is definitely the result of lobbying, primarily by the food service industry, which employs the most tipped workers, the majority of whom are women," says Michael Reisch, professor at the University of Maryland School of Social Work.

Benson notes that seven states have moved toward having one minimum wage for everybody, making no distinction between tipped workers and workers in general.

But federal law, and the law in most states, is the tip credit/base wage system.

Lots of things have changed in the nearly 50 years since it was established.

I'm sure many workers do very well with tips. But a 2013 analysis by the Bureau of Labor Statistics found that the median hourly wage of a waiter or waitress worked out to $8.92. That's above the federal minimum, but still only $18,590 a year.

Which gets to what bugs me about this: Considering the huge gap between the country's wealthiest 10 percent and everyone else — with so many of the "everyone else" stuck in low-paying jobs, many of them in the service sector — why do we legally limit the amount of compensation a waiter, waitress, housekeeper or busboy might get? They should be entitled to the minimum wage before tips. Tips are what you get for extra effort. And I thought that in America we like to see extra effort rewarded.

drodricks@baltsun.com

Dan Rodricks' column appears each Tuesday, Thursday and Sunday. He is the host of "Midday" on WYPR-FM.

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