A system counting tips toward the minimum wage is being fought in many places. Critics say it’s often abused. Defenders say workers benefit overall.
With Americans resuming prepandemic habits of going out, eating out and traveling, leisure and hospitality businesses have scrambled to hire, sometimes offering pay increases that outpace inflation.
But for many whose pay is linked to tips, like restaurant servers and bartenders, base wages remain low, and collecting what is owed under the law can be a struggle.
In all but eight states, employers can legally choose to pay workers who receive tips a “subminimum” wage — in some places as low as $2.13 an hour — as long as tips bring their earnings to the equivalent of the minimum wage in a pay period. Economists estimate that at least 5.5 million workers are paid on that basis.
The provision, known as the tip credit, is a unique industry subsidy that lets employers meet pay requirements more cheaply. And even in a tight labor market, it is often abused at the employees’ expense, according to workers, labor lawyers, many regulators and economists.
“It’s baked into the model,” said David Weil, the administrator of the Wage and Hour Division of the Labor Department under President Barack Obama, referring to the frequency of violations. “And it’s very problematic.”
Terrence Rice, a bartender from Cleveland who has worked in the bar and restaurant industry since 1999, chuckled at the notion that the law is consistently followed.
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