Debate over minimum wage is heating up and tipping is caught in the middle.

For the service worker, tips are a way of life.

Those who serve food or pour drinks, carry luggage, cut hair and polish nails all work in occupations where the customer largely determines how much their work is worth.

For those reasons some say the tipping system works. It’s also reason others say the system needs change; that having a separate, lower minimum wage for tipped workers results in worse economic outcomes for the worker and raises the potential for wage theft and discrimination.

So there are two arguments:

• Taking away tips would deprive workers of pay they’ve earned for good service, resulting in a pay decrease and an incentive to leave the industry. It could also force service businesses such as restaurants to increase overhead costs.
• If employers paid service workers a living wage, they would not have to rely on tips to make a living. Lawmakers in Pennsylvania should gradually raise the minimum wage for tipped workers from $2.83 an hour to federal level, $7.25.

Potential minimum wage hike

However, a minimum wage increase in the state could be around the bend.

In Pennsylvania, legislation to raise the state’s minimum wage for the first time since 2009 passed the state Senate on Nov. 20. The Republican-controlled Senate approved the bill, 42-7 to raise Pennsylvania’s minimum wage in four steps to $9.50 by 2022. The bill is working its way through the House of Representatives.

“This is really the middle ground where the business community came together,” said Melissa Bova, vice president of government affairs for the Pennsylvania Restaurant & Lodging Association, based in Harrisburg. “$9.50 is a reasonable number. Tipped employees in our industry are making more than minimum wage. When you talk about increasing the tipped wage, who are you helping? You aren’t helping anyone at the end of the day.”

She described the compromise reached with the governor on the minimum wage increase as a reasonable one that would keep Pennsylvania competitive.

“I think the hospitality industry will continue to thrive because of it,” Bova said.

Employers in Pennsylvania can take a tip credit but must pay tipped employees at least $2.83 an hour. However, if an employee doesn’t earn enough in tips to bring the total compensation up to at least the full minimum wage of $7.25 per hour, the employer must make up the difference, according an article by Aaron Hotfelder, posted on Nolo.com, a legal publisher based in Berkeley, California.

“At the end of the day, you have to make minimum wage,” Bova said. “The business has to make up for that. That is so rare that it’s not a problem.”

An American tradition

The tipping system is a uniquely American one.

In Europe, where the employer pays the server a flat rate with no tips, the level of service is significantly different, said Mike Axiotis, president and CEO of Lehigh Valley Restaurant Group, a Red Robin franchisee with 2,000 employees across 21 locations in Eastern and Central Pennsylvania.

When workers receive tips, it allows them to deliver a greater level of service for the guests, Axiotis said.

“Being in the hospitality business, the ultimate goal is to deliver great service for guests,” Axiotis said.

Servers that earn a wage and tips earn greater than the federally proposed $15 per hour minimum flat rate wage increase, he added. A service worker in Pennsylvania earns an average of about $19 per hour, including tips. In many cases, it’s greater than that, Axiotis said.

“We don’t oppose a minimum wage increase but tips should not go away,” he said. “The current system is fine the way it’s set up. What’s being proposed at the state level is favorable to everyone.”

Tips will continue

John List, chief economist at Lyft and a professor at the University of Chicago does not believe minimum wage laws will have a deep impact on tipping. Most times, people pay about 15 percent to 20 percent of the bill in tips. If the wage goes up, they will simply pay more.

Minimum wage laws are more applicable to the behind-the-scenes workers at restaurants, such as dishwashers, List said. Either the servers or the employers should find a way to subsidize the pay of the behind-the-scenes workers, he added.

“I think tipping is here to stay,” List said. “Because if you look historically, powerful people have tried to get rid of it. It never dies because it’s a good way to reward high quality.”

Another leader in the restaurant industry agreed.

“[With] the tipping system that’s set up today, our average employee makes between $25 to $30 per hour,” said Jim Fris, CEO of PJW Restaurant Group, based in Westmont, New Jersey. Fris has more than 2,000 workers in restaurants under his group, including several P.J. Whelihan’s locations in the Lehigh Valley, Southeastern Pennsylvania and Southern Jersey.

“Nobody gets paid $2.83 per hour,” Fris said. “They have to make at least minimum wage. The tipping allows the workers to earn greater than the minimum wage based on performance.”

Keep tips coming but pay workers more

Not everyone believes that having a separate minimum wage for tipped workers is beneficial.

One economic analyst said research indicates that the lower minimum for tipped workers perpetuates racial and gender inequities and results in worse economic outcomes for these workers.

David Cooper, a senior economic analyst at the Economic Policy Institute, researched the two-tiered wage system for tipped workers in New York. In testimony before the state’s wage board in July 2018, he advocated for gradually raising New York’s lower minimum wage to the state’s regular minimum wage.

“There is no economic justification for maintaining a system where customers directly pay the bulk of wages for a business’s employee,” Cooper testified. “Consider the outrage that would ensue if other professions operated the same way.”

Cooper found that tipped workers were disproportionately women (70 percent) and that wage theft was acute in industries with large numbers of tipped workers because of a lack of enforcement.

Loss of flexibility

Allowing workers to receive tips helps create an environment where service workers can enjoy flexible hours, incentives to give great service and opportunities for advancement according to proponents of the tipping system.

The restaurant industry is not 9 to 5, added Bova. The flexibility allows workers to work a lunch shift or other hours that fit their lifestyle, she said.

The flexibility in hours is one thing that attracts workers to the service industry, Axiotis added.

Meredith Morgan, a server at ChopHouse Grille in Exton, says she enjoys making people happy and serving them. If the tipping system were to change at the federal or state level and tips were taken away, she said she would have to find a new career.

“You’re not helping the servers, you’re hurting us,” she said. “The customers are going to suffer a lot.”

When Seattle did away with tipping, it was a huge hit to the gross income of hospitality workers, said Conrad Flynn, a bartender and server at The Hamilton Kitchen & Bar in Allentown.

“Culturally across the U.S., there probably isn’t an industry that has as much upward mobility and income ability as the hospitality industry,” Flynn said. “It’s an industry where someone who doesn’t have any skills can work themselves up and pretty quickly at that.”

Tipping is a larger reason for that, he added. There isn’t really anywhere else where it’s as culturally universal as it is in the U.S., he said.

Long history

Historically, there has been strong resistance to tipping at different points in time, List said. In 1915, six states abolished tipping and today, tipping brings in billions.

The unpredictability in income levels that comes from being a restaurant worker is something that Flynn sees as an advantage.

“You have to do some degree of looking after yourself,” Flynn said. “In the hospitality industry, it does teach a great deal of personal responsibility.”

He feels tipping is strongly supported in the U.S. and taking it away would take away many opportunities for lots of people.

Drawbacks and benefits

List sees both benefits and drawbacks to the tipping system.

“On one hand, tipping is really good because it rewards high quality and disciplines the server to try to give good service,” List said.

He can see the difference in the level of service at a Paris restaurant compared to one in New York, Philadelphia or Chicago.

“On the other, once tipping evolves to be a social norm, it evolves into a tax because you put the patron in a situation if they don’t pay a tip, they feel a pain in the heart,” List said. “Even for bad service, you have people giving a tip. In that way, it’s unjust and extortion.”

Those who don’t pay a tip feel they are being a stingy person.