Why A Union Group Is Trying To End Tip Credits Across The Country

Though tipping might be less common in other countries as food etiquette rules around the world differ, it is the social norm in the United States. Some people would rather abolish tipping and address the compensation issue, and CNBC reports that President Biden has even proposed the idea of increasing wages for restaurant workers. The lowest minimum wage in the United States is $7.25 per hour, which the Federal Labor Standards Act controls (via Paycor). And a handful of states, including Alabama, Idaho, and Indiana have this minimum wage in place.

However, some restaurants are allowed to pay less than minimum wage due to an employer benefit called tip credit. According to Restaurant Business, tip credits permit restaurant owners to pay their workers lower than minimum wage, as long as their tips bring them up to equal to or more than that amount. One union group called One Fair Wage is taking the stand to end the policy and is putting forth a $25 million dollar campaign to lobby for tip credits to be removed in 26 states by 2026. While the policy is good for employers and restaurant owners, it turns out to be a bit more complicated than it might appear at first glance.

Tip credit may actually be far less beneficial than it may seem, and the union group One Fair Wage is trying to address the issue head-on. As reported by Restaurant Business, the policy allows employers to pay a lower wage to workers who receive tips with the assumption that the customer's gratuity will account for the difference in compensation. In other words, with tip credit, employees' tips are an assumed part of their normal salary. The policy also requires employers to increase pay to make up the difference if the minimum wage isn't reached.

One Fair Wage claims that tip credits are problematic for several reasons, one of which being that they affect workers from minority backgrounds — white servers may be tipped higher than Black servers, according to research referenced by the group. Saru Jayaraman, the president of One Fair Wage, also spoke about how tipping policies negatively affect women in the workplace due to trends of harassment (via Restaurant Business). Businesses in minimum wage states that pay higher, such as New York and Illinois, would be affected if tip credits were cut out completely.

According to the Economic Policy Institute, many restaurant workers struggle to cover all of their living expenses, causing many to live in or near poverty. This fuels One Fair Wage to stand up in the fight against tip credit and to advocate for restaurant employees to receive the pay they deserve.