The seven states that require a full minimum wage with tips have shown higher growth rates, sales and employment, according to One Fair Wage.
More than 1,600 restaurants are paying an average wage of $13.50 plus tips across 41 states, according to a new report from One Fair Wage, as operators continue to battle for labor and retention.
These restaurants previously paid a subminimum wage to tipped workers, but have now raised wages to provide the full federal minimum wage or higher with tips on top. The Fair Labor Standards Act allows employers with tipped workers to pay as little as $2.13 per hour in direct wages—otherwise known as a subminimum wage—with tips making up the balance of the federal minimum wage, which is $7.25 per hour. More than 40 states have a subminimum wage for tipped workers, the majority being $5 per hour or less.
In its report, One Fair Wage cited data from Restaurant Opportunities Centers United that showed the seven states requiring a full minimum wage with tips have higher growth rates, sales, and employment.
“The restaurant industry is increasingly recognizing that there is no other way to entice millions of workers who have left or are leaving the industry to return or stay, and thus no other way to fully reopen or recover from the COVID-19 pandemic,” said Saru Jayaraman, executive director of One Fair Wage, in a statement. “After 150 years of tolerating poverty wages since Emancipation, workers are refusing to work for anything less than a full, livable wage with tips on top, and responsive employers need policymakers to support their responsiveness by creating a level playing field and signaling to millions of workers that it is worth returning to work in restaurants.”
The wage increases occur at a time when restaurants face mounting pressure to recruit and retain employees. A report by Black Box Intelligence and Snagajob found there are roughly 70 percent more job vacancies compared to pre-pandemic across all industries and 10 percent fewer people looking for work, which is the largest gap in recorded history.
The record number of job openings is reflected in One Fair Wage's data. Around May, 53 percent of service workers reported they were considering leaving their jobs, with most leaving because their wages and tips were too low. Nearly eight in 10 of these workers said they would only stay in restaurants or return to work in restaurants if they received a full, livable wage with tips on top. In July, 710,000 restaurant workers quit their jobs, according to the U.S. Bureau of Labor Statistics.
Many operators suggested the $300 weekly enhancement to unemployment benefits was the main reason behind the labor shortage, but several economists have reported marginal changes to employment rates after states canceled the extra funds. One Fair Wage found that among unemployed people in states where benefits were prematurely ended, 57 percent still said they are not considering returning to the service industry, and 79 percent said their main reason for leaving was low wages and tips.
Restaurants interviewed by One Fair Wage said they are increasing wages to recruit staff and offer a livable wage. More than a thousand restaurants signed a letter to Congress supporting a federal policy to raise wages for all workers in order to level the playing field.
“Raising the minimum wage and eliminating the sub-minimum wage for tipped employees will help level the field for all restaurants, improve the lives of our team members and strengthen local economies. Taking these actions independently can be challenging, but doing it collectively will help us make our industry better and ultimately stronger,” said Michael Shemtov, owner of Butcher and the Bee in Tennessee and South Carolina, in a statement.