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Many servers say they are getting less tips in states where the minimum has been increased.

Survey: Restaurant Tips Down as Minimum Wage Climbs

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Is this hurting or helping the industry?
By Danny Klein April 2017 Employee Management

To say minimum wage is a hot-button issue in the restaurant industry would be a comical understatement. While it is rather (extremely) difficult to predict this current administration, it seems unlikely that any wage increase will be take place on a federal level. But, in many states, a wage hike is still going down, and more could be on the way.

In early 2017, minimum wage increases were implemented across 20 states. The question then becomes, is this hurting or helping millions of front-of-the-house employees across the country?

Upserve, a restaurant management platform, tackled this debate with a survey of 420 front-of-house employees eligible for tips. Of those, 154 worked in states that raised the minimum wage in the past two months. So, is it a good thing or a terrible thing? The answers, in some places, might surprise you.

As Upserve points out, around half the minimum-wage workforce is employed at businesses with fewer than 100 employees, and 40 percent are very small businesses with fewer than 50 employees (Census Bureau).

To start, there’s no denying minimum wage is going up. Thirty-six percent of the responded said the minimum wage had risen in their state in the last six months.

However, despite that, take-home pay is not increasing. Seventy-three percent said their wages and tips have not gone up since minimum wage increased.

In fact, while salary is up, tipping is down, with 24 percent saying their tips have decreased as a result of an increase in minimum wage.

Does that mean that guests think higher-paid employees need to be tipped less? This study points to that as a real possibility. Forty-five percent said they believed guests think the waiter or waitress’ salary has gone up, and staff makes more money as a result of the minimum wage increases.

The question was, “Do you believe guests overestimate how much the minimum wage has positively impacted your take-home pay?

  • Yes, they think I make much more now: 45 percent
  • Maybe, but I haven’t seen much of an impact: 28 percent
  • No, my take-home pay with tips is the same: 13 percent
  • I don’t know: 14 percent

Of all those employees polled, only 13 percent saw minimum wage as a non-factor in their take-home pay. And, in this case, that’s mostly a gloomy response.

For the tips themselves it went like this:

  • There has been no change in my tips: 67 percent
  • My tips have decreased 24 percent
  • My tips have increased: 3 percent
  • I don’t know: 6 percent

Again, the 24 percent there is interesting because it’s the first emotional response. After the status quo, the arrow points negative.

Upserve explains that in most cases tipped workers are not impacted by a blanket minimum wage increase. In Vermont and Maine, tipped workers earn $5 an hour despite minimum wage hikes to $10 and $9, respectively. In Massachusetts, where the number is $11 an hour, tipped employees still only make $3 an hour.

In the search for a solution, how would increased hourly pay work as a substitute for tips? Upserve found it wouldn’t.

  • Tipped workers said they wouldn’t accept a sustainable increase in hourly pay if it meant eliminating tips.
  • No. Tipping supplements my income more than any pay raise would: 69 percent.
  • Maybe. Depends on the size of the raise: 27 percent
  • I don’t know: 3 percent.
  • Yes. A higher hourly wage is a better deal: 1 percent.

This is a rough spot for an operator to be in. Increase the pay too much and you’re likely to go flailing into the red. For most restaurants, this is simply not a margin equation they can tip in a new direction.

A past Upserve study showed that 97 percent of servers preferred tipping as their payment method.

In the end, the industry will adjust. A major issue right now, as TDn2K pointed out in its recap of March, is that restaurant turnover rates continue to skyrocket as the labor market approaches near full employment. Turnover for restaurant hourly employees as well as managers increased again during February, and the rates are higher than they have been in more than 10 years.

It would appear at first glance that minimum wage increases would help restaurant employees stick around. But, as Upserve’s study shows, nothing is ever that clear-cut in this business.