In most of the country, workers in restaurants, bars, nail salons, barber shops, and other service jobs are paid differently than workers in virtually all other occupations. For these workers, a large portion of their take-home pay comes from gratuity or “tips” provided directly from the customer.
While employers of workers in other occupations must pay at least the minimum wage, federal and most states’ laws establish a lower “subminimum wage” for tipped workers that effectively passes the responsibility for compensating these workers from their employers to their clientele. To understand the roots of this uniquely American institution and its consequences for workers today, we must return to the most shameful institution in American history: slavery.
Following the Civil War and the abolition of slavery, formerly enslaved Black workers were often relegated to service jobs (e.g., food service workers and railroad porters). However, instead of paying Black workers, employers suggested that guests offer Black workers a small tip for their services. The use of tipping to pay a worker’s base wage, instead of as a bonus on top of employer-paid wages, became an increasingly common practice for service sector employment.
The 1938 Fair Labor Standards Act (FLSA) and its subsequent amendments further enshrined this discriminatory treatment of tipped workers. Though the FLSA is known for having established fundamental worker protections — including the 40-hour workweek, overtime protection, and a national minimum wage — the law initially excluded protections for hotel, restaurant, and other service workers.
Proponents of the FLSA deliberately excluded industries that were the predominant employers of Black Americans to secure the support of Southern Democrats in Congress. These gaping holes in the FLSA’s protections persisted for roughly 30 years, until the mid-1960s, when the FLSA was amended to extend coverage to service sector workers.
However, while service workers in restaurants, hotels, bars, and elsewhere would now be covered under the law, the 1966 amendments to the FLSA created a “tip credit” — effectively establishing a separate tipped minimum wage set at half the regular minimum wage. In 1996, the FLSA was amended again to raise the federal minimum wage from $4.25 to $5.15.
However, the bipartisan deal that was struck in Congress to achieve this increase decoupled the tipped minimum wage from the regular minimum wage. The deal locked the tipped minimum wage statutorily at $2.13 per hour (50 percent of $4.25).
The federal minimum wage has been stuck at $7.25 since 2009, while the tipped minimum wage remains $2.13 per hour. As a result, employers of tipped workers can rely on customers to pay $5.12 per hour — roughly 70 percent — of the business’ wage obligation to tipped staff. Even as most states have now enacted minimum wages above the federal $7.25 per hour, many still maintain exceptionally low tipped minimum wages.
For instance, in Delaware, Nebraska, and Rhode Island, the regular state minimum wage is scheduled to reach $15 per hour in the coming years, yet the tipped minimum wage in each of these states remains less than $4 per hour. Who is on the hook for this growing share of tipped workers’ wages? Customers, not employers.
Across the country, tipped workers are paid at least a third less than the median worker overall — which translates to over $9 less nationwide. It bears mentioning that poverty rates for tipped workers are 2.3 times higher than poverty rates for non-tipped workers, and states that pay the lowest tipped minimum wage allowed by law ($2.13 per hour) have the highest poverty rates overall.
Relying on customers to pay the bulk of tipped workers’ wages exposes workers to tremendous instability of income, as pay can vary dramatically day-to-day and week-to-week. Employers are legally required to ensure that on a weekly basis tips (the “tip credit”) cover the gap between the tipped minimum wage and the regular minimum wage.
If they do not, employers are responsible for making up the difference. In practice, this requirement is exceptionally difficult to enforce. As a result, tipped workers — who are already paid low wages — are particularly vulnerable to wage theft.
From low pay to high poverty rates, to wage theft, sexual harassment, and workplace discrimination, the injustices tipped workers face are not equally shared across demographic groups but are concentrated among workers of color and women.
Hispanic, Asian-American and Pacific Islander (AAPI), foreign-born, and women workers are overrepresented in the tipped workforce, while white workers and men are underrepresented. The tipped workforce nationwide is nearly two-thirds women, and disproportionately composed of women of color. When it comes to geography, more tipped workers live in the South — the region with the largest Black population — than any other region.
From emancipation, the racist practice of tipping prevailed in low-wage industries — disproportionately composed of Black workers, workers of color, and women — before subminimum wages were enshrined into law, creating a two-tiered system for wages that has been preserved as a means of racial and economic control.
To address the discriminatory treatment of tipped workers in the South and across the country, lawmakers must eliminate the tipped subminimum wage and give tipped workers the same basic protection afforded to other workers in almost all other jobs — a minimum hourly wage, regardless of tips.
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