What Really Happens to Your Tip?

(Source: Getty)

I was asked during a recent interview what happens to the tips we leave in restaurants. Do they actually go to the workers? I said they’re supposed to. Often they don’t.

First, tips don’t only go to servers. They are typically shared—with bussers, runners, bartenders, floor captains, and more. These workers receive varying percentages of total tips on top of the abysmally low minimum hourly wage they receive for tipped labor—$2.13 at the federal level, and between $2 and $4 in most states. These workers live off low wages earned from their employers as well as the generosity given by their customers, who decide whether and how much to tip.

Do they actually go to restaurant workers? By law, they’re supposed to. Often they don’t.

By law, restaurants are required to make up the difference between a server’s hourly base pay and the federal minimum for all other workers, $7.25. That means restaurants are supposed to calculate how much servers make in tips and ensure that those tips exceed $7.25 per hour on average. This legally required business expense is offset by what’s called a “tip credit”—a discount on workers’ wages because we, the customers, are asked to pay workers’ wages for restaurants.

Having to calculate whether tips actually bring workers’ wages up to the federal minimum wage each week can put an incredible burden on small businesses. Unsurprisingly, the U.S. Department of Labor reports a violation rate of 84 percent with regard to the tip credit.

Worse, these workers’ paltry earnings are often stolen.

One in five servers reports being forced to share tips with management, according to a national survey conducted by my organization. You might think that happens only with cash, not with credit cards. Think again. Restaurants often deduct credit card-processing fees from workers’ tips.

Philadelphia recently passed an ordinance banning the deduction of credit card-processing fees from tips. When the bill was being debated, a local restauranteur complained that he’d lose $500,000 annually. It was a rare case of unintended honesty. He had been skimming half a million dollars from his workers’ tips. Sadly, Philadelphia is just one of a few places to ban tip-skimming.

Workers’ tips are stolen in other ways. One of our leaders, Claudia Munoz, tells the story of having worked at the IHOP in Houston while in graduate school. Her hourly base pay $2.13. The IHOP did not bother making sure that her tips brought her hourly wages up to the federal minimum. It reported that she was earning $7.25 an hour regardless of what she earned in tips. The result? No paycheck. Ever. The real $2.13 an hour paid the taxes on the fictional $7.25 an hour.

Claudia describes not being able to afford food, and being so hungry that she’d wait to get to the restaurant so she could flirt with cooks to get extra food. One evening, Claudia worked an overnight shift at the IHOP, and earned some decent tips. But at the end of the night, a couple walked out without paying the bill. The restaurant’s management—though it is illegal—required Claudia to pay for the walkout, which was more than everything she earned that night.

Claudia paid $20 to work for nothing.

What can we do as tippers? First, leave tips in cash. Second, demand that tips go solely and directly to workers, and that workers be paid a full, stable, livable base wage. Don’t continue subsidizing an industry that should be paying its own workers. No one should be living off tips.


Saru Jayaraman is the co-founder of the Restaurant Opportunities Centers United, director of the Food Labor Research Center at UC Berkeley. She is the author of Behind the Kitchen Door.


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