On Tips, Wages, and Tips ARE Wages

It started on facebook.  A friend from work posted about a meeting another friend at work had called, to be held in a spare room at a restaurant downtown.  For weeks we’d been hearing that the proposed minimum wage hike in Seattle was going to ruin our way of life.  Restaurants, in particular, were going to be hard-hit by the wage hike (half the staff makes the state minimum wage of $9.32/hour; bumping them to $15 overnight would eat what little profit our employers were making), leading to closures and cutbacks on hours available for people to work.  We had to do something.

At the meeting was a handout someone had printed up.  The first line said TIPS ARE WAGES.  There was more, a pageful of redux telling us all the things we’d been hearing: the doomsaying, the worst case what-ifs, frightening-est among them: WHAT IF PEOPLE STOP TIPPING?!?.  We nodded our heads; we’d heard this before, and we were worried, too.  It was why we were here.

[disclaimer/disclosure: that was my last week as a tipped employee.  I am currently on hiatus from the hospitality industry.]

The girl who’d called the meeting spoke, as did the man who’d helped set it up.  A march was suggested, contact info taken.  Six or eight of us caught a bug and stayed after, to start putting it together.  Tips ARE Wages would be our slogan, our name, the thing we were arguing, because to people like us, who earn our living from tips, to say tips are wages is like saying ketchup is a condiment.  It jibes with our intuitive understanding of the world.  It’s just common sense.  Tips are how we get paid.  Wages are the monies you get paid for working.  Tips are wages.  Duh.

Things evolved very quickly in the week that followed, a whirlwind of events and epiphanies I’ll no doubt thrill you with some other time, once I’ve wrapped my head around it all a little tighter.  But a week to the day after the first meeting (the day the march would have been held, had we gone forward with it), there was another meeting, at which what I would describe as a friendly parting of ways occurred.  I was among the splitters.

That might seem a strange decision, seeing how much passion and work I’d put into the whole thing.  And I respect those who stayed with it.  Anytime a citizen actively engages in the political process, I count that as a win for democracy and just generally a good thing.  But I couldn’t continue under the auspices of an organization with whose basic premise I’d come to disagree. As intuitively obvious as it is to say tips are wages, if you want to put it in legislation, you need something called a tip credit, which was abolished in Washington State in or around 1989 (said abolition being one of the reasons those of us going to all those meetings and doing all that organizing can make the money we do).


What is a tip credit?  Here’s how it works.  Everybody has to make at least minimum wage.  But some jobs, like bartending, are understood to be tipped professions, meaning that it’s generally understood that some to much of the money earned practicing such a profession is paid by the customers in the form of gratuities.  So for professions like that, the employer pays a much lower hourly rate (the federal tipped worker rate has been frozen at $2.13/hour since 1996; until then it was pegged at half the federal minimum), and the employee reports their tips as taxable income. So what happens if someone doesn’t make enough in tips to meet the federal minimum wage?  The employer is required to pay the difference, but they get a credit for whatever tips the employee earned.  Hence the term ‘tip credit.’ One of the reasons you can make grown-up money in Seattle as a server or bartender is that there is no tip credit here, so you make $9.32/hour, plus your tips.  It means you get a substantial paycheck instead of the spare change left over after income taxes are deducted from your reported tip earnings (I have, in other states, received paychecks for two weeks’ work that totaled $20 or less).  It’s great.  It’s one of the reasons I bartended for as long as I did.


The folks who stayed with Tips are Wages believe that introducing a tip credit (maybe permanent, maybe phased out) will help cushion the blow on small business when their labor prices (and, most likely, the price of most everything else) go up.  If restaurants and bars, at least, can keep their tipped employees at the state minimum wage, then maybe they can weather the storm and the citizens of Seattle won’t lose too many of their favorite hangouts.  It’s not unreasonable, and the certified policy wonk I talked to said that a workable policy for raising the minimum wage could be made to include a tip credit, if need be, and still do what it needs to do. But myself I can’t support it.


It’s possible the sky is really falling — I believe the small business owners I’ve spoken to believe that it is — and that transitioning to a higher minimum wage, even with a phased implementation for small business, will cause such a shock to the economy, at least that part of it concerning the service industry, that places will close and jobs will get scarcer.  The legislation on the table is more ambitious than anything that’s ever been tried before, at least in the States, and if poorly managed or too sudden could cause serious upheaval.  Anybody who says they know how it’s going to pan out is selling something.  And I think it’s really generous that a whole bunch of folks are willing to take a pay cut to keep their employers afloat.


The problem, for me, is two-fold.  First off, the city has no pre-existing apparatus for enforcing compliance.  There’s no tip credit in Washington state, so why would they?  That means building a bureaucracy, writing rules for it, hiring administrators and compliance officers, paying them with monies either from new tax revenue or diverted from existing programs.  All that costs money and effort on the part of city government, with its limited resources and cornucopia of fires to put out and problems to solve, and it seems like a lot of effort to go to just to give business owners a break they could probably catch just as easily some other way.  Making a tip credit temporary would only make it more expensive, since said enforcement apparatus would have to be taken back apart once its mandate expired.


The second problem is more nebulous, but also, I fear, more nefarious as well.  It is, quite simply, that reintroducing a tip credit opens up some very troubling possibilities for abuse.  For one thing, I could see a lot of people getting new job titles (one need only make $30/month in gratuities to qualify as a ‘tipped worker,’ after all), dropping them back down to $9.32, plus tips that employers are responsible for reporting.  Without a strong, established enforcement apparatus, who’s to stop them from fudging the accounting?  I’m not saying everyone will get up to shenanigans, but opening up this kind of loophole creates an incentive to figure out just how much can be snuck through it.  Myself I’m willing to bet that more than I can think of offhand can be.


I’m all for obviating the impact of a wage hike on small business (big business can probably take care of itself, is my thinking).   I just don’t think reintroducing a tip credit is the way to go about it.  Attractive as it might seem (indeed, it seemed quite reasonable to me until very recently), actually implementing it causes as many problems as it solves.  There are better ways to accomplish what it would accomplish that don’t come with that baggage.  Let’s concentrate on those things.


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