In a move that could potentially help hundreds of thousands of Americans across the United States, at least five states are reconsidering the age-old practice of allowing businesses to pay below the minimum wage to workers who are reliant on tips. Activists are eyeing the possibility of taking the fight on subminimum pay to as many as 20 states this year alone in a bid to address wage inequality and combat the cost of living crisis.
States Leading the Charge
The states in question include Michigan, Ohio, Massachusetts, Arizona and Connecticut.
Activists in these states are pushing ballot measures aimed at removing the two-tiered pay system in place for people who earn tips, such as restaurant servers and bartenders.
Disparity in Minimum Wage
Only seven U.S. states have a single minimum wage for service workers who rely on tips, leaving a majority of workers earning a lower wage that often falls below the federal floor of $7.25 an hour.
Subminimum Wage Stagnation
The minimum pay for workers who rely on tips is set at the federal level – $2.13 an hour.
Workers who earn less than $7.25 an hour, even with tips, are supposed to have their wages topped up by employers, but research indicates that this doesn’t happen consistently. $2.13 is a rate that hasn’t increased in over 20 years.
One Fair Wage, a nonprofit advocacy group, is driving the fight for reform among activists.
This movement is reaching a tipping point, as there’s a growing sentiment that the subminimum wage model is outdated and no longer sustainable.
New York’s Battle
One of the upcoming battlegrounds is New York, where activists are pushing to end the exemption that excludes tip earners from the recently implemented $15 hourly minimum wage.
Momentum Starts Building
Things began to gain momentum shortly after Chicago lawmakers voted to phase out the tipped subminimum wage until it’s equal to the city’s minimum $15.80.
Chicago Setting a Precedent
Chicago has set a precedent for other regions, and now One Fair Wage activists, led by head Saru Jayaraman, are campaigning for similar changes in Hawaii, Illinois, Maryland, and Rhode Island.
Industry Shifts Post-Pandemic
The post-pandemic era has seen a seismic shift in the restaurant industry, with a surge in labor costs and a struggle to hire employees.
Tips, once a reliable source of income, are no longer sufficient to support workers earning subminimum wages.
Industry-Wide Voluntary Wage Reform
Jayaraman notes that thousands of restaurants nationwide have abandoned subminimum wages, opting for a unified base pay for all workers, with tips as an additional benefit.
While tipping volumes saw a modest increase post-pandemic, most Americans are suffering from “tip fatigue,” brought on by annoyance with card reader prompts, inflation, and problems with tipping etiquette.
Impact on Worker Income
Some employees claim they are making up to 30% less than they were a year ago, a problem they blame on public opposition to tipflation.
Subminimum Wages Help Thin Profit Margins
Critics of these new pay measures argue that subminimum pay is crucial for smaller establishments operating on thin profit margins.
Are Increased Costs an Inevitability?
They argue that if subminimum pay is abolished, passing higher labor costs onto consumers in the form of increased menu prices or service charges is inevitable.
Incentive for Good Service
Advocates of the subminimum pay structure also contend that tipping is a powerful incentive for good service.
However, economists like Sylvia Allegretto from the Center for Economic and Policy Research argue that these people are using a decades-long talking point that has been historically used to make service wages stagnate.
Allegretto Uses Her Lived Experiences
She stated, “Why are there restaurants in California if we have a $16 minimum wage and no subminimum wage?”
Addressing Labor Shortages
Activists acknowledge the need for a level playing field but argue that the current system is contributing to labor shortages and high turnover, with many workers demanding legal changes before returning to work.
2024 Election Dynamics
As 2024 unfolds, it remains to be seen how many voters and policymakers will rally behind the movement for fair wages for tipped workers.
The One Fair Wage initiative not only seeks to eliminate subminimum pay but also aims to raise overall state minimum wages across the board.
In an election year where the cost of living tops the list of concerns, the battle for fair wages for tipped workers is poised to become a defining issue.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.