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An unlikely ally for operators in the tip-credit battle

Back in my server days, I had no idea what a tip credit was. I knew I was pulling a whopping $2.13 per hour in my paycheck, but I also knew I was leaving my five or so-hour shift with about $75 cash in my pocket. I always said there was no way I’d ever work retail—I was making 10 times more than my best friend, who worked at The Gap for an hourly rate of $9-something an hour. Heck, if I had the right section, I easily could be pulling at least $20 an hour on a weekend night—and that was in the suburbs.

While educating ourselves on what the tip credit really meant for an upcoming article—and the uproar surrounding it—I realized something: I don’t think the majority of servers have any clue as to what’s at stake for them in the tip credit/minimum wage debate. And the fallacies and misconceptions put out there by proponents of raising the minimum wage and tip credit are clouding the reality of what a lot of tipped workers are really making.

The first thing I did was pick up the phone and call my younger brother, a marketing and events coordinator in Vermont who bartends on the side. I asked what he makes per hour bartending. “I don’t know. $15? $18?” “Your paycheck is $15 per hour?” I asked.

“Heck no. My paycheck is nothing. You asked what I make. I get paid in tips. That’s’ why I said a range. It isn’t always a guaranteed $15 or $20 or whatever, but it usually falls somewhere in there, barring a freak snowstorm or something.”

Playing dumb, I asked why his check was nothing, when the minimum wage is more than $9 per hour in Vermont. His simple explanation: “I don’t know. I don’t think it’s the same rules for waiters and bartenders.” I asked if he had ever heard of a tip credit, and got the “the what? No.” answer I was expecting.

So I tried to explain as simple as possible, with nice, round numbers. “Let’s say the minimum wage is $10 per hour. But since the government knows you’re also making tips, they tell your boss that your paycheck only has to be $2 per hour, as long as the tips you report get you up to that $10 mark, giving them an $8 tip credit. But people are fighting to drive the credit up, meaning restaurants will have to pay more like $5 per hour, but the tip part won’t change.”

His response? “So I’ll be making more money? Sweet!”

Then I realized, while some tipped employees might not know the intricacies of the tip-credit rules, they are hip to the system. When I first started waitressing, my trainer (another server) told me to declare as few tips as possible when closing out at the end of the night. We had to report credit-card tips in the POS, but he told me to not add in any cash I had made. When I asked why (I’m a millennial, after all—we question everything), he simple said, “Because you’ll make more money.” He didn’t explain that there’d be a chance I wouldn’t hit the minimum to be considered a tipped employee if I didn’t declare enough tips, so my paycheck from the restaurant would have to be more. He just knew that reporting less meant a potential for a higher paycheck, even though he was making well over what he put in the system.

But then the conversation with my brother took a turn. He worked his way up to bar manager while in college in Missouri, so I knew he had a general idea of the low margin bars and restaurants operate on. I asked him how he thought restaurants would pay this $3 per hour more to each employee. He said, “Oh, I have no idea where they’d get that money if nothing else is changing.” (He meant if prices and traffic both stay the same.)

I explained what I’d seen and heard. I told him some restaurants are suggesting that they’ll have to cut staff in order to pay the higher wage. “Man, that sucks,” he said. I said that some are trialing another solution—no tipping. I told him some are raising prices or adding an administration fee in order to pay the once-tipped positions a set hourly rate. “So no tips? You’re just an hourly? What’s the point of waiting tables, then?” he said.

And it was right then that I realized operators might have an unlikely ally in the debate to raise the tip credit—tipped employees, especially servers and bartenders at upscale-casual restaurants who are making well over the minimum wage in tips. Professional servers in major urban markets such as Chicago, New York City, Los Angeles and Las Vegas are likely pulling hundreds of dollars a night in tips; chances are they aren’t going to want to give up those tips in favor of a stable hourly wage. And they definitely don’t want to lose their jobs (or take on bigger table sections if they stay), because the restaurant can’t afford to pay the same number of staffers.

The problem, though, is that most don’t understand the fallout. Like my brother, many servers might just see the upped tip credit as a chance for a higher paycheck. Those paying attention might even just be keeping quiet, twiddling their thumbs in hopes of a larger take-home. But to simply expect more pay without business ramifications—ramifications that effect their livelihood—isn’t realistic. 

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