Tipping in Tipping and Income Inequality: Does Tipping Perpetuate the Pay Gap for Service Workers?

Tipping is something that has been ingrained in society for years. Starting in medieval Europe, it was brought over to America in the 1800s as a way for wealthy people to show appreciation for servants. It has since become a standard form of payment for servers in various industries. But does tipping lead to income inequality and financial instability?

Employers who hire tipped workers typically adhere to a subminimum wage pay structure. As a result, employees rely heavily on tips. This business model can be lucrative, but what happens on slow days when there aren’t as many customers?

Workers who rely on tips face financial instability, but it goes much deeper than that. This article will explore the dark side of tipping, revealing how it not only promotes income equality but is rooted in the culture of racism and exploitation. 

The Origins of Tipping

Tipping was initially established in Europe during the medieval times. Americans who vacationed there discovered the practice and brought it to their homeland. It became popular after the abolition of slavery. 

Recently freed slaves often found themselves in service positions working as food servers and railroad porters. Rather than pay them, their employers usually suggested customers tip workers so they could keep costs down. The practice has extended throughout history, establishing itself as ‘the norm’ for workers in the service industry. 

The Establishment of the NRA and FLSA

Employers ensured tipping remained a viable form of payment by creating the National Restaurant Association (NRA) in 1919. The organization lobbied Congress to exclude tipped workers from minimum wage protections and won. 

Later, in 1938, the Fair Labor Standards Act offered workers protection like 40-hour work weeks, overtime pay, and a national minimum wage. However, these protections did not cover the service sector, which was deliberately excluded as it was predominantly comprised of black employees. 

In the 1960s, civil rights were more widely recognized, and the FLSA was amended, creating a tip credit. Under the tip credit, employers were permitted to count tips against 50% of the minimum wage they were required to pay. So, if the minimum wage were $15, it would be $7.50 for tipped workers. This rate was referred to as a subminimum wage. 

Thereby, workers in states like Georgia and Washington, where the minimum wage is $5.15 per hour, could earn as little as $2.57 per hour. 

The subminimum wage percentage has adjusted over the years, reaching as high as 60% in the mid-80s. However, it still establishes low wages for servers, leaving them to rely on tips, which can be unreliable. 

The Subminimum Wage and How it Impacts Today’s Servers

The subminimum wage leads to two significant issues- financial instability and poverty. Let’s explore how they play out in today’s economy. 

Financial Instability Among Tipped Workers

Tipped workers cannot insightfully predict how much they will make each day. Slow business days and dissatisfied customers (sometimes due to factors beyond their control) can contribute to low earnings, making it difficult for them to make financial decisions or even know if they can pay their bills. 

Employers must legally protect workers from financial instability by providing compensation to cover the gap. In other words, if workers do not earn the minimum wage considering tips and salary, the employer must compensate them accordingly. 

However, this law is difficult to enforce as it is up to workers to track their hours and tips and calculate possible discrepancies. Employers may refuse to pay if they see a fault in their mathematics. 

At best, this also leaves servers with minimum wage earnings, an undesirable salary for any employed individual. 

Poverty Among Tipped Workers

Poverty is a common concern for tipped workers. A 2024 Economic Policy Report reveals that tipped workers are 2.3 times more likely to be impoverished than nontipped workers. Poverty among tipped workers is exceptionally high in the Midwest and South, areas that tend to have large low-income populations. 

Additionally, many tipped workers do not have access to benefits like sick leave, health care, disability, paid vacation, and life insurance and are often reliant on public assistance programs. 

Other Inequalities Among Tipped Workers

The practice of tipping has evolved, and a majority of today’s population no longer sees it as a means of segregation. However, the industry is dominated by women and minorities such as Hispanics, Asian Americans, Pacific Islanders, and other foreign-born workers. Men and Caucasians are underrepresented. 

Women who work in the industry are also more likely to be subjugated to sexual harassment as compared to any other industry. 76% of tipped women workers have reported cases of sexual harassment as compared to 52% of nontipped women workers. Harassment is more likely to happen in states with a subminimum wage as workers rely on customers for income, feeding possible power plays. 

What’s Being Done

Fortunately, lawmakers recognize the harm of the subminimum wage. Several states have eliminated it, including Alaska, California, Minnesota, Montana, Nevada, Oregon, Washington, and Southern D.C. Connecticut, Illinois, and Maryland, and several other states are considering eliminating it as well. 

However, the issue remains a constant in the South, a region suffering most from the subminimum wage legislation. In the mid-2010s, several localities in the South attempted to raise minimum wages but were blocked by majority white state legislators who aimed to maintain the economic subjugation in those areas, thereby ensuring their political standing. It supports a corporate model of prioritizing corporations over the working population. 

Tipping may be lucrative for some workers, but it supports financial instability and income inequality when combined with the subminimum wage. Many governments are addressing the issue by eliminating subminimum wages in their locality, but the most impacted regions are still struggling. What can be done to promote a more equitable work economy? Let us know your thoughts in the comments below.