The Tipping Point: How Tipped Wages Harm Workers and Increase Inequalities

By Zia Saylor


You've probably experienced it a hundred times: after paying for a coffee or lunch, the screen asks if you want to add a tip. The increased demand for tips at coffee shops and lunch counters may leave you wondering: what's the deal here? Do workers actually receive the tip you provide? Does it boost their income in a meaningful way?

While the federal minimum wage is $7.25 an hour, Indiana, along with sixteen other states, has a separate, lower minimum wage for tipped workers of $2.13 an hour that has remained unchanged since 1991. Indiana classifies anyone who earns over $30 per month in tips as a tipped worker, and their hourly payment is lower with the argument that the rest can be made up in tips from customers. Employers are supposed to make up the difference between the tipped wage ($2.13) and the federal minimum ($7.25) if the tips don’t fill that gap. However, a study analyzing data from the U.S. Department of Labor found that approximately 84% of investigated restaurants violated tipped wage policy, cheating workers out of roughly $5.5 million in total wages.

The pandemic exacerbated several facets of tipping culture, with customers failing to tip based on the enforcement of public health measures or the demographic characteristics of the server (particularly race and gender). Because so much of the worker’s pay relies on those tips, this creates a system in which social perceptions of the worthiness of someone’s time–often based on stereotypes or preferential treatment–controls their actual wage and livelihood. Given the origin of tipping as a means of race, class, and gender oppression, it is no surprise that this system perpetuates such inequalities, yet it also puts workers at risk by disempowering them in the workplace. In the post-pandemic era, service workers have faced an increase in harassment, yet receive fewer tips and lower tip amounts. Workers must then decide whether they will tolerate abuse or forfeit a tip. 

The issues impacting tipped workers have spread across industries thanks to the increased prevalence of screens prompting customers to tip, pushing more workers above the $30/month threshold for being considered a tipped worker. How electronic sale terminals have shaped the tipped workforce is an area of ambiguity, as workers aren’t categorized within U.S. Bureau of Labor Statistics data as explicitly tipped or not (most estimates come from aggregating specific industries widely considered “tipped”), leading to different interpretations of tipped populations and inconclusive estimates

The spread of the tipped wage will further harm workers during this time of inflation, particularly impacting those along lines of historical inequalities. Already in Indiana, nearly one in five female tipped workers (18.7%) lives in poverty, with higher rates of poverty for women of color. The median hourly wage received by a waiter/waitress is $10.97, which is impossible to thrive on and means that over 80% ($8.84) of that is reliant on customer tips. Hoosiers working as bartenders receive a slightly higher median hourly wage ($10.90), while Hoosiers working as coatroom attendants receive a lower median hourly wage of $8.46. Nationwide, estimates suggest that 25% of the youth workforce (ages 16 to 24) works in tipped sectors, meaning that they will face difficulties in building up savings for success later on when so much of their wage is reliant on conditional goodwill. 

So how do we create a more fair system and protect our tipped workers? Indiana does offer one protection to tipped workers to offset some of the inequality created by the tipped wage: a tip pool, in which all restaurant or business employees (other than management) that contribute to the production of the service are eligible shared tips. This reduces income disparities between front-facing and behind-the-scenes jobs that are also typically gendered and racialized. In other key legislative areas, however, Indiana falls short: while anything marked as a tip legally has to go to workers, mandatory service charges do not necessarily go to workers, and any associated credit card fees can count against wages/tips earned

Solutions to this issue are simple: eliminating the “tipped wage” would prevent a gap between tipped and untipped workers and reduce the power imbalance that clientele hold over workers. Seven states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) already do this, and studies indicate lower turnover rates, higher employee morale, unchanged tipping amounts left by customers, consistent restaurant prices, and even increased growth of restaurants. Beyond elimination of the tipped wage, however, Indiana should close more legal loopholes, particularly around the deduction of credit card fees from wages, and ensure enforcement of tipped worker protection. 

How can you take action? Within Indiana, contact your state representative and state senator and let them know you want to see equity in wages. You can also join the Indiana Community Action Poverty Institute mailing list for updates on legislation that would remove unfair systems such as the tipped wage. At a national level, One Fair Wage offers a petition to give all workers access to a fair and untipped wage that meets their needs. They also offer a list of restaurants that do engage in worker-friendly practices so that you can support places that invest in their employees. Lastly, One Fair Wage offers resources for restaurant staff and managers on how to engage in worker-friendly practices and ensure that everyone is allowed their legal working rights.

Curious to learn more? Read our policy brief on tipped wages. 

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