The Benefits of The Tip Wage
OVERVIEW
Tip income includes not only cash, but all income earned by way of tips. Tip wages are essential to employees, employers, and consumers in a well functioning restaurant industry.
According to recent research by the National Restaurant Association, skilled hospitality employees generally earn between $19-25 dollars per hour and have made clear many times that they support a tipped minimum wage on which both employees owe income and FICA taxes and employers pay taxes for Social Security purposes, Medicare purposes, and unemployment purposes.
GOOD FOR EMPLOYEES
Employees get a wage increase each time a restaurant increases their menu prices because customers are generally tipping a percentage of their total bill. When menu prices increase, so do employee’s tips. This helps account for cost of living adjustments as a result of inflation.
Tipped employees generally earn an average of $8-$14 more than the current minimum wage of $11.50/hour.
Employers face strict penalties if they take a tip credit without meeting the legal requirements for doing so.
Under the current system, all tipped employees are guaranteed the same minimum wage as all other employees in the event that their tips do not cover minimum wage requirements as.
Conclusion:
The system works for tipped employees as they are the highest wage earners in a restaurant and this model has driven job growth for supporting positions such as cooks, dishwashers and host/hostesses.
GOOD FOR BUSINESS
Under the current business model, the Rhode Island restaurant industry has grown to over 2,800 eating and drinking locations.
Restaurants have the highest amount of entrepreneurship of any industry in the state.
Restaurant owners must invest in their business to provide employees with the opportunity to make tips.
Restaurants operate with an average of 2-3% of profit per year and thus make razor-thin bottom line profit. This is based on the well balanced business model of the restaurant industry. This is considered normal economic profit and is thus reflective of a healthy business model for consumers, employees, and employers.
Conclusion:
The system works for employers because it fairly compensates the employee and allows the employer to build and sustain their business. Additionally, this system keeps menu prices down for the consumer, which in turn, builds future business.
WHY?
Conclusion:
The Raise the Wage Act threatens to upend the current employment system of the restaurant industry by imposing universal employment standards to an industry with unique demands. The restaurant industry has not and should not be subject to universal business practices that will hinder business and institute a ceiling to wages earned by traditionally tipped employees.
CONSEQUENCES OF
ELIMINATING THE TIP-WAGE
To compensate, employers would be forced to:
- lay off employees;
- raise the cost of their service; and/or
- Slash wages for non-tipped workers who previously earned more than minimum wage.
Conclusion:
Eliminating the tip-wage will result in lower wages for all employees whether tipped or not. Employers will be pressured to cut costs and/or raise the cost of their service. This will result in higher costs for customers which will
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