Who is responsible for paying a worker's wage? The business owner or the customer? That question is at the heart of a debate over whether business owners in California should be able to pay their tipped workers a lower minimum wage.
The restaurant industry has been lobbying hard both at the state Capitol and at L.A.'s City Hall to convince lawmakers that proposals to raise the minimum wage should exempt waiters, bartenders, valet parking attendants and other tipped employees who generally supplement their base pay with gratuities. Instead, restaurateurs are pushing for a “total compensation model,” in which they would be allowed to pay a lower wage with the expectation that employees would earn enough in tips to reach or exceed the minimum wage. If an employee did not reach the minimum wage, the employer would make up the difference.
Assemblyman Tom Daly (D-Anaheim) introduced a restaurant-industry sponsored bill this session that would have changed state law to allow the total compensation model. But he scrapped it after facing pushback from other legislators and organized labor leaders, who question why the change is necessary. California is one of only seven states that do not allow employers to pay a lower minimum wage to tipped workers, yet that has not slowed the growth of the restaurant industry.
Now restaurateurs are turning their sights to Los Angeles, where two minimum-wage proposals are being considered — one to raise wages to $13.25 by 2017 and another bringing it to $15.25 by 2019. Mayor Eric Garcetti and some council members have said they would support a total compensation model for tipped workers when (and if) the city sets a new minimum wage.
It's true, as the owners note, that restaurants typically operate on thin profit margins and that the pay increase will prompt some to leave L.A., cut staff or jack up prices. But lots of industries have slim margins. Why should lawmakers exempt one class of employers from paying the minimum wage? If a hike is approved, any business that hires low-wage workers will face a significant direct cost that could lead to job losses and closures. On balance, we believe the economic and societal benefits of putting more money into the hands of workers will probably outweigh the negative impacts, assuming the new wage is a reasonable one. It's hard to see the advantage of carving exceptions into the law that leave some workers behind.
Restaurant owners also argue that an across-the-board wage hike would give tipped employees, who can earn $30 an hour or more in some high-end restaurants, an unnecessary pay hike, using money that could otherwise be used to boost the incomes of lower-paid, untipped kitchen staff.
But the reality is that most tipped workers are not making $30 an hour. Advocates for the minimum-wage hike estimate that more than 60% of tipped workers in all industries earn less than $25,000 per year. The average hourly pay of a waiter or waitress in the L.A. area is $11.81 including tips, according to the Bureau of Labor Statistics. The California Restaurant Assn. disputes that figure and commissioned a study that found the average hourly wage among servers to be $21. But even if the average wage is that high, there would still be a significant number of tipped restaurant employees who earn less than $13 or $15.
More than half of tipped workers do not work in the restaurant industry. Valet parking attendants, manicurists, hairstylists, carwash workers — they're all tipped employees, and some work in industries notorious for wage theft and underpayment. There is a real concern that a total compensation model would be difficult to track and enforce and that some workers could be left with a sub-minimum wage.
So who should be responsible for paying workers? By allowing a lower wage for tipped workers and relying on gratuities to boost it to or above the minimum wage, lawmakers would be shifting the burden from the employer to the customer. But most customers don't view a tip as compensation for a worker's time and labor; it's a bonus for service. Its size — indeed, whether it is given at all — is based on the whim of the customer. It is wrong to formalize in law the idea that customers' optional tips are the appropriate way for workers to bring their salaries up to minimum wage.
If restaurant owners want to spread the wage increase more equitably, they can eliminate tipping altogether and institute a service charge to be split between service staff and kitchen staff. But they should not be exempted from minimum-wage requirements. Instead, like other businesses, they should pay a decent salary to their workers.