Report Highlights How Marylanders Who Work for Tips Have Been Left Behind

July 16, 2014 by Sean Miskell in Blog, Economic Opportunity

Bartenders, waiters and other Maryland workers who routinely get tips – many, if not most, of them women — will have to rely even more on the generosity of their customers to make a living since state lawmakers left tipped workers out of the minimum wage increase. A new report by the non-partisan Economic Policy Institute and the University of California, Berkeley highlights how the subminimum wage for tipped workers amounts to a subsidy for their employers. 

When Maryland’s minimum wage hits $10.10 an hour in July 2018, employers of tipped workers will be paying them only 36 percent of the minimum wage on average, down from 50 percent now. The workers will be relying on customers to make up the rest (64 percent).

Legally, employers are supposed to make up whatever difference there is between the sub-minimum wage earned by tipped workers — $3.63 in Maryland – and the minimum wage for workers who are not routinely tipped. But the law is hard to enforce, and if employers ignore it or customers don’t become more generous, the workers are out of luck.

Tipped workers already are among the lowest-income Americans and are twice as likely to be poor than other workers, according to the report. Leaving them out of the minimum wage increase will only make a bad situation even worse for them at a time when the economy is still trying to reach full orbit after the recession.

The General Assembly secured an important victory for many Maryland workers when it increased Maryland’s minimum wage earlier this year. However, as we have discussed previously, the lawmakers also left some workers behind, in particular tipped workers, whose minimum wage was already set at 50 percent of the minimum that other workers must be paid. The EPI/UC report analyzes who tipped workers are and why a subminimum wage for these workers amounts to a generous subsidy for their employers.

Contrary to how we normally think of tips, they are not just a way for customers to reward workers for a job well-done. Rather, tips provide a means for customers to subsidize the restaurant chains, corporate pizza purveyors and other employers of tipped workers. Employers must make up the difference between the tipped and the regular minimum wage, but only when tips do not.

This is particularly troubling because most occupations that employ tipped workers pay very low wages, and tipped workers are usually among the lowest income quartile. Worse, the poverty rate for tipped workers is double that of other workers. 

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Source: The Economic Policy Institute

What this ends up meaning is that Marylanders are not only subsidizing tipped workers’ wages as customers, but as taxpayers as well. Because tipped workers are more likely to have lower incomes than other workers and live in poverty, they are also more likely to need public assistance to make ends meet. Nearly half, 46 percent, of tipped workers and their families rely on public benefits, compared to 35.5 percent of workers who are not tipped, according to the report. 

Furthermore, contrary to common assumptions, these low wages are not just going to high school or college students looking to make a little extra money.  A majority of tipped workers are over 25. And women are disproportionately harmed by freezing the subminimum wage for tipped workers, since  they comprise two-thirds of all tipped workers. 

The report advocates applying the same minimum wage to all employees, tipped or otherwise. Currently, seven states do not have a separate subminimum wage for tipped workers. In these states, paying tipped workers the regular minimum wage has not held down employment growth in the leisure and hospitality industries, according to the report. In addition, poverty rates are lower for tipped workers in the seven states where they are paid the full minimum wage.

Lawmakers in the General Assembly should take heed of the data presented in the report. At the very least, they should unfreeze the tipped minimum wage so that it rises with the minimum wage for all workers. Maryland’s residents should not have to subsidize the employers of tipped workers, as customers or as taxpayers. Tipped workers deserve better.