5 ms·

But this is a bit of a chicken and egg problem, isn't it? You could just as easily argue that the wages are so low because tipping is pretty much a given.

icebraining 10y ago
It's actually enshrined into law - restaurants are allowed to pay less than minimum wage because of tipping. It's a perversion of the whole norm, since it effectively turns tipping into a subsidy to the restaurant owner. https://en.wikipedia.org/wiki/Tipped_wage_in_the_United_States https://en.wikipedia.org/wiki/Tipped_wage_in_the_United_Stat...
- maxerickson 10y ago
  As your link says, they are not allowed to pay less than minimum wage. They are allowed to set hourly wages for tipped employees lower than minimum wage, but they have to ensure that the total compensation of the employee averages out to minimum wage.
  - mratzloff 10y ago
    Realistically, if the restaurant owner has to contribute anything beyond their hourly rate to the paycheck of the server, that server will be fired (or the business is so slow that it will go under soon).
    - _asummers 10y ago
      My experience as a server was a lot of < $1 paystubs after taxes on tips.
    - Spooky23 10y ago
      Not necessarily. I briefly worked at a 24x7 roadside place where tipped employees would occasionally fall under minimum wage due to slow periods or customers who would either stiff the waitress or tip out $0.35 on an egg, toast, coffee which cost $2.65. That place systematically robbed those staff by refusing to pay minimum wage and falsifying records and withholding taxes based in nonexistent tips. The Labor department fined then pretty heavily -- but that isn't an uncommon practice.
      - mratzloff 10y ago
        I'm not sure how this contradicts what I said. Your experience showed that the business was not contributing anymore to your paycheck than the normal wage. Had they not been breaking the law, they probably would have fired someone due to the "extra" expense.
  - icebraining 10y ago
    Exactly - so any tip just reduces how much the owner has to pay to cover minimum wage, making it a subsidy to them, not to the server, who gets minimum wage either way.
    - maxerickson 10y ago
      It's not really a subsidy though, it's just a complication of the payment. It could be a subsidy if it wasn't an established custom to tip, but people know quite well that they are paying the server a tip for the service. I suppose the fact that it enables the restaurant to under-report wages and thus under-pay wage taxes is a bit of a subsidy (but then some of that savings probably shows up for the customer).
      - icebraining 10y ago
        It is a subsidy, because the server gets the same, it's the restaurant that pockets the difference. Say the server works 40h/week like a regular full-time worker, so the minimum take-home pay under federal law is $15000. If the server gets $0 in tips, the restaurant must pay the $15000. But if the server gets, say, $5000 in tips, the restaurant can pay only $10000. The server gets the same money, only the restaurant gets to save some.
        maxerickson 10y ago
        Right. In practice, servers get $15000+ in tips. So there usually isn't a subsidy. It also has a non zero impact on the menu prices (they would go up if tipping wasn't expected)
LordHumungous 10y ago
Seattle recently passed $15 minimum wage and now a lot of restaurants are charging a "service fee" and putting up signs that discourage you from tipping. A much better system imo.
- nommm-nommm 10y ago
  Washington State specifically doesn't allow tipped employees to be paid a lower hourly wage!
- toomanybeersies 10y ago
  What's the point of a service fee on top of the cost of your meal though? Why not incorporate it into your meal, since it's non-optional. I noticed they did this in Singapore. You'd be charged a service fee on top of your bill, I can't remember if they popped tax on top of that too. If it's non-optional, it should be included in the cost.
  - ddeck 10y ago
    >What's the point of a service fee on top of the cost of your meal though? For the same reason airlines don't include mandatory charges in their fares - humans are not particularly good at rational pricing evaluation. It's known as partition pricing and generally results in higher revenues - from "The Effects on Perceived Restaurant Expensiveness of Tipping and Its Alternatives": [1] "Furthermore, participants ordered more expensive meals when automatic gratuities were added to the bill than when the costs of service were built into menu prices" [1] http://scholarship.sha.cornell.edu/cgi/viewcontent.cgi?article=1162&context=chrpubs http://scholarship.sha.cornell.edu/cgi/viewcontent.cgi?artic... See also: http://www.msi.org/reports/divide-and-prosper-effects-of-partitioned-prices-on-consumers-price-recall/ http://www.msi.org/reports/divide-and-prosper-effects-of-par...
  - LordHumungous 10y ago
    Because if you raise menu prices by 20% customers will balk. Maybe eventually when people are used to the new system that will happen.

icebraining 10y ago

It's actually enshrined into law - restaurants are allowed to pay less than minimum wage because of tipping. It's a perversion of the whole norm, since it effectively turns tipping into a subsidy to the restaurant owner. https://en.wikipedia.org/wiki/Tipped_wage_in_the_United_States https://en.wikipedia.org/wiki/Tipped_wage_in_the_United_Stat...

maxerickson 10y ago
As your link says, they are not allowed to pay less than minimum wage. They are allowed to set hourly wages for tipped employees lower than minimum wage, but they have to ensure that the total compensation of the employee averages out to minimum wage.
- mratzloff 10y ago
  Realistically, if the restaurant owner has to contribute anything beyond their hourly rate to the paycheck of the server, that server will be fired (or the business is so slow that it will go under soon).
  - _asummers 10y ago
    My experience as a server was a lot of < $1 paystubs after taxes on tips.
  - Spooky23 10y ago
    Not necessarily. I briefly worked at a 24x7 roadside place where tipped employees would occasionally fall under minimum wage due to slow periods or customers who would either stiff the waitress or tip out $0.35 on an egg, toast, coffee which cost $2.65. That place systematically robbed those staff by refusing to pay minimum wage and falsifying records and withholding taxes based in nonexistent tips. The Labor department fined then pretty heavily -- but that isn't an uncommon practice.
    - mratzloff 10y ago
      I'm not sure how this contradicts what I said. Your experience showed that the business was not contributing anymore to your paycheck than the normal wage. Had they not been breaking the law, they probably would have fired someone due to the "extra" expense.
- icebraining 10y ago
  Exactly - so any tip just reduces how much the owner has to pay to cover minimum wage, making it a subsidy to them, not to the server, who gets minimum wage either way.
  - maxerickson 10y ago
    It's not really a subsidy though, it's just a complication of the payment. It could be a subsidy if it wasn't an established custom to tip, but people know quite well that they are paying the server a tip for the service. I suppose the fact that it enables the restaurant to under-report wages and thus under-pay wage taxes is a bit of a subsidy (but then some of that savings probably shows up for the customer).
    - icebraining 10y ago
      It is a subsidy, because the server gets the same, it's the restaurant that pockets the difference. Say the server works 40h/week like a regular full-time worker, so the minimum take-home pay under federal law is $15000. If the server gets $0 in tips, the restaurant must pay the $15000. But if the server gets, say, $5000 in tips, the restaurant can pay only $10000. The server gets the same money, only the restaurant gets to save some.
      - maxerickson 10y ago
        Right. In practice, servers get $15000+ in tips. So there usually isn't a subsidy. It also has a non zero impact on the menu prices (they would go up if tipping wasn't expected)

LordHumungous 10y ago

Seattle recently passed $15 minimum wage and now a lot of restaurants are charging a "service fee" and putting up signs that discourage you from tipping. A much better system imo.

nommm-nommm 10y ago
Washington State specifically doesn't allow tipped employees to be paid a lower hourly wage!
toomanybeersies 10y ago
What's the point of a service fee on top of the cost of your meal though? Why not incorporate it into your meal, since it's non-optional. I noticed they did this in Singapore. You'd be charged a service fee on top of your bill, I can't remember if they popped tax on top of that too. If it's non-optional, it should be included in the cost.
- ddeck 10y ago
  >What's the point of a service fee on top of the cost of your meal though? For the same reason airlines don't include mandatory charges in their fares - humans are not particularly good at rational pricing evaluation. It's known as partition pricing and generally results in higher revenues - from "The Effects on Perceived Restaurant Expensiveness of Tipping and Its Alternatives": [1] "Furthermore, participants ordered more expensive meals when automatic gratuities were added to the bill than when the costs of service were built into menu prices" [1] http://scholarship.sha.cornell.edu/cgi/viewcontent.cgi?article=1162&context=chrpubs http://scholarship.sha.cornell.edu/cgi/viewcontent.cgi?artic... See also: http://www.msi.org/reports/divide-and-prosper-effects-of-partitioned-prices-on-consumers-price-recall/ http://www.msi.org/reports/divide-and-prosper-effects-of-par...
- LordHumungous 10y ago
  Because if you raise menu prices by 20% customers will balk. Maybe eventually when people are used to the new system that will happen.