Despite all headlines and conversations coming out of Harrisburg focused on the minimum wage, there’s another conversation happening that will impact tens of thousands of Pennsylvanians. And other than to those paying very close attention to legislative filings, it’s mostly flying under the radar. The tipped wage is under threat.
In 2021, the Pennsylvania Department of Labor and Industry estimated there were 199,285 tipped workers in Pennsylvania, as defined by regulations at the time. This number included workers who earn a base wage of $7.25 per hour and those with employers that take the tip credit and pay $2.83 per hour.
Countless hospitality employees depend on the opportunity and flexibility of earning a tipped wage. The tipped wage structure empowers many to earn far beyond their expected income and provides flexibility unmatched by any other industry. It’s not just a win for employees but also for small business owners and restaurant employers. Thousands of restaurateurs depend on the proper use of the tip credit to manage costs, foster growth, and maintain a sustainable business model. Any changes to the tipped wage would impact all of hospitality.
Saving the tip credit and preserving the tipped wage ought to be a bipartisan issue. Employees have seen the consequences of changes to the tipped wage — reduced tips, decreased earnings, and a threat to flexibility, the reason so many choose hospitality. Increases to the tipped wage would significantly impact Pennsylvania’s restaurant’s servers and bartenders.
Tipped workers consider the current system extremely profitable and flexible. Most prefer it over non-tipping alternatives. Raising tipped wages will not only decrease the number of existing jobs but will also negatively affect the number of businesses offering tip-eligible jobs, where workers can earn a substantial income from tips. Analysis by Harvard Business School concluded that each $1 increase in San Francisco’s tipped minimum wage correlated with a 14 percent increase in the likelihood of median-rated restaurant closure, taking tipped employment opportunities with it.
For every minimum wage proposal, there are attempts to eliminate or increase the tipped wage. Yet, when there are media stories and calls for increases to the minimum wage, no one confronts that weighty component.
As restaurant operators and frontline employees who are all too familiar with the complexities of the tipped wage, we imagine it’s partially due to a lack of familiarity and grasp of the subject.
Current state and federal rules and regulations around tipped wages require that all tipped employees earn at least the minimum wage. If a tipped employee does not earn the minimum wage in tips when working their shift, it’s a legal obligation of the business owner to close that gap. Let us be clear: If tips and the base wage don’t equal the full minimum, state and federal law protects workers by requiring employers make up the difference in wages. Despite a few bad actors, most restaurants take these laws and regulations around partnerships with their tipped employees extremely seriously. Pennsylvania recently updated its tipped wage rules, which provide employees with even more safeguards. In other words, any increase to the minimum wage would also be an automatic increase in the base wage a tipped employee could earn too.
The reality is that tipped employees earn far beyond the minimum wage. Most tipped staff report earning $27 to $41 per hour. Economists find that in areas where tipped wages have increased, the strain on business owners costs jobs and even shuts down establishments altogether.
Like many other industries, hospitality is struggling with an unprecedented workforce shortage. Hospitality operators endured that and other significant economic changes for three years. The evolving landscape and competition have provided for an organic increase in wages, with most in hospitality offering expanded benefits, signing and referral bonuses, and unmatched opportunities.
Like other industries, the restaurant industry is ready to have a conversation about a reasonable increase in the minimum wage. The tipped wage, however, is different. The industry dynamics are fragile and ought to be treated judiciously. Otherwise, thousands will lose their businesses, and tens of thousands will lose jobs. The tipped wage is separate and should not be overlooked or buried in conversations. The tipped wage provides many with a career of opportunity and should remain untouched.
Sean McGranaghan is director of operations at Winnie’s Manayunk.
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