Most people assume restaurant tips are a reward for good service that helps servers get ahead. In reality, your tip fills a gap created by a loophole. Federal minimum wage law allows restaurant owners to pay their tipped employees just $2.13 an hour.
This sub-minimum wage hasn’t increased for 22 years and amounts to less than a third of the federal minimum wage. It helps large restaurant corporations and their CEOs pad their bottom lines while trapping millions of American workers in economic insecurity.
The average server earned $20,710 last year, according to the Bureau of Labor Statistics. Because these workers start in such a hole, they are three times more likely to live in poverty and twice as likely to be eligible for food stamps as employees in other industries. A quarter of all servers are over 40, and many of them have families to support.
From 1966, when the tipped minimum wage was first introduced, until 1996, it was pegged at 50 percent of the prevailing minimum wage. But aggressive lobbying by the National Restaurant Association, which is dominated by large restaurant chains, removed the linkage and froze the minimum wage for tipped workers at its 1991 level of $2.13 an hour. Since then, about half the states have either raised the tipped minimum wage or have no minimum wage at all for tipped workers. For the rest, $2.13 an hour remains the standard.
The 22-year freeze of the federal tipped minimum wage has been especially hard on women, who fill 71 percent of food server jobs.
Excluding women and people of color from the full protection of the minimum wage is nothing new. When the minimum wage was first adopted in 1938, it covered just 6 percent of the American workforce, most of them white males. The government explicitly excluded domestic and agricultural workers, whose ranks were dominated by women and people of color. Today, only two industries with large female workforces remain not fully covered by the minimum wage law: home health care workers and restaurant servers.
There’s momentum in Congress to increase the minimum wage to $10.10 an hour and peg the tipped minimum wage at 70 percent of this level, or $7.07 an hour. The National Restaurant Association is again marshalling its tremendous political clout to block this increase for its employees.
Leading the opposition is Darden Restaurants, the world’s largest full-service restaurant chain and the owner of Red Lobster, Olive Garden, and Longhorn Steakhouse, among others. In 1991, Darden reported $2.6 million in sales per restaurant. By 2013, sales per restaurant increased 52 percent to $4 million. During the same period, the hourly pay of much of Darden’s wait staff increased by, well, zero. Only employees in Darden’s fine dining Capital Grille restaurant chain and those in states that have adopted a tipped minimum wage that is higher than the federal minimum earn more.
In 1996, Olive Garden reported an average bill per customer of between $10 and $11. Since then, sales per customer have increased by more than 50 percent. While Darden is taking in substantially more revenue from its customers, most of its tipped employees continue to be paid the same $2.13 an hour they’ve received for the last 22 years.
A lot of Darden’s increase in revenue is finding its way into the wallet of CEO Clarence Otis, Jr., who took home $6.4 million last year. That’s nearly four times what his predecessor was paid in 1996, when the restaurant industry first blocked an increase in the tipped minimum wage. Otis’ take works out to $2,116 an hour (assuming he works 60 hours a week all year, with two weeks of vacation). Every two hours, Darden’s CEO makes more than his company pays its $2.13-an-hour wait staff for a full year’s work.
When leaders of extremely profitable restaurant chains fill their own plates while denying raises to those who work hard every day to serve their customers, it should leave a bad taste in all our mouths.
Scott Klinger is an associate fellow at the Institute for Policy Studies in Washington, D.C.