Gratuity excluded: The bottom line for tipped workers

Just last month, Cornell University’s School of Hotel Administration published the study “Have Minimum Wage Increases Hurt the Restaurant Industry? The Evidence Says No!” The title of this peer-reviewed study speaks for itself, and the data looks at both increases to the federal minimum wage for tipped workers of $2.13 and $7.25 for non-tipped workers when they’re both increased. States like New York and California are experimenting with raising the wage of tipped workers as high as $7.50 and $9.00, respectively.

New Hampshire state representative Jackie Cilley (D) is proposing a bill that would raise the wage of tipped workers in the state to $7.25 by 2020. And some prominent, national restaurant owners are taking note: Internationally renowned Brooklyn restaurant Meadowsweet made news when it eliminated tipping, increased menu prices up to 20 percent and began paying servers $27.00 hourly on Jan. 1 of this year.

Even The New York Times endorsement of presidential candidate Hillary Clinton (D), published only four days ago, mentioned tipped workers. The Times’ editorial board proclaims that one of Mrs. Clinton’s strong suits is that she has been and will be an advocate for those working Americans most adversely impacted by “the problems with labor law” — notably, women — and the piece mentioned “low wages for tipped workers” (although Mrs. Clinton mentions no policy that would specifically impact tipped workers’ low wages).

But when Louisville had the opportunity to make history for their own tipped workers, the city failed to do so. While there was a robust effort from Louisville social justice groups and former council members, tipped workers were excluded from the minimum wage ordinance passed last year. Thus, thousands of local tipped workers such as servers, bartenders and bussers will continue to make $2.13 hourly, in spite of the city’s recently implemented minimum wage increase.

On Dec. 19, 2014, The minimum wage ordinance passed with a 16-9 party line vote in the Metro Council, with Democrats voting in favor and Republicans opposing the measure. The minimum wage increase went into effect July 1, 2015. Council members in favor pushed for an incremental wage increase to $10.10 by the year 2017. However, Mayor Greg Fischer threatened to veto if this provision wasn’t changed. The Metro Council compromised on $9 hourly by 2017. Prior to passing, another provision of the minimum wage ordinance changed: the tipped worker provision. The removed provision stated that tipped workers’ hourly wage would be raised to 45 percent of what the incremental minimum wage increase would be in Louisville in a given year (i.e., $7.75 in 2015, $8.25 in 2016 and up to $9 by 2017). The provision also stated that during shifts when tipped workers do not receive gratuity (e.g., a server works for two hours doing side work, then gets cut due to slow business before they get a table), they will receive the full minimum wage for those hours.

While no mainstream media outlets shed light on the story of the exclusion of tipped workers from the minimum wage ordinance, the impact would have been significant: Jefferson County tipped workers would have had their hourly wage nearly doubled by 2017 — a wage that has remained the same for decades. According to the U.S. Census Bureau, tipped workers such as bartenders and servers account for nearly 13,000 workers in Louisville. Bartenders make an average annual salary of $20,740, whereas servers make $19,670. The average per capita income in Jefferson County is $27,925.

In the interest of learning about what life is like in a precarious industry earning only $2.13 hourly, LEO spoke with former council members, community activists, opponents of the minimum wage, as well as former and current tipped workers.

What happened to the tipped worker provision?

The tipped worker provision made its way into the minimum wage ordinance due to the advocacy of a social justice group and a sympathetic former councilwoman. The now defunct Kentucky Jobs with Justice (KyJWJ) advocated for inclusion of a provision that would raise the wage of tipped workers. Bonifacio Aleman, the former executive director of KyJWJ, was himself a former tipped worker, spending four years working for Kingfish.

“I’m heartbroken, actually,” Aleman stated, when asked about his thoughts regarding the removal of the tipped worker provision from the ordinance. “When the original draft of the ordinance was filed by former Councilwoman [Attica] Scott, it didn’t have a provision for tipped workers,” Aleman told LEO. “We spent months talking with Scott and other co-sponsors and with council members on both sides of the political spectrum about the need to include tipped workers, and it was finally included.”

In a period of two months prior to passage of the ordinance, Aleman had to leave his job as executive director of KyJWJ, and the tipped worker provision was removed in this period of time.

Former Democratic Councilwoman Attica Scott (D-1) became a lonely voice on the Metro Council: She was a proponent of including tipped workers in the minimum wage ordinance. Scott told LEO that the exclusion of tipped workers was “very disappointing.” Scott was the initial sponsor and most vocal supporter of the minimum wage increase in Louisville. “Part of it was people’s misunderstanding about what it means to be a tipped worker, making assumptions that employees would make up the five dollars-plus difference [in addition to the $2.13 hourly] at the end of the pay period, which doesn’t always happen,” Scott told LEO. “We worked hard to make sure that we covered the range of minimum wage workers, including tipped workers.”

Scott said the tipped worker provision was removed due to internal disagreement within the Democratic Caucus and had nothing to do with Mayor Fischer. “There were several [Democratic council members] who opposed it. I can’t say that there were just a few,” Scott told LEO. Bonifacio Aleman agreed with former Councilwoman Scott. “Sadly, several Democrats in Metro Council touted the line that this isn’t going to be good for restaurants and that restaurants will close down,” Aleman stated. “It’s hard for me to believe that someone on the Council would take that and run with it, but I’ve seen them do it.”

When asked why fellow Democratic council members opposed the tipped worker provision — and more generally why there was opposition to the minimum wage ordinance — Scott said, “Politicians often bow down to corporate entities and their scare tactics.”

While former Councilwoman Scott wasn’t specific, she did mention groups like the Kentucky Restaurant Association (KRA), who sent mass emails to all council members to get their message out opposing the minimum wage ordinance, according to Tony Hyatt, spokesman for Metro Council Democrats.

The Mayor’s Office agreed with former Councilwoman Scott that the removal of the tipped worker provision had nothing to do with Mayor Fischer. Communications Director Chris Poynter told LEO that it didn’t get to the point where Mayor Fischer and the Council had a discussion about the tipped worker provision.

While the removal of the tipped worker provision seems to be a product of disagreement amongst the Democratic Caucus, there were and are individuals and organizations from the restaurant industry who are still attempting to dismantle the minimum wage increase. LEO reached out to some of these individuals to find out why.

Opposition to the minimum wage ordinance and tipped worker provision

The KRA has been one of the more outspoken opponents of the minimum wage increase in Louisville. LEO spoke to KRA CEO Stacy Roof about whether the KRA lobbied for the removal of the tipped worker provision. Roof stated that the KRA played no role in influencing council members to remove the tipped worker provision.

The KRA is one of the plaintiffs, along with Packaging Unlimited and the Kentucky Retail Association, who will be opposing the Jefferson County Attorney’s Office in front of the Kentucky Supreme Court regarding the legality of Louisville raising the wage, which the plaintiffs claim Louisville doesn’t have the authority to do. Roof said that the opposition to the minimum wage increase has nothing to do with the impact on Louisville’s economy, and KRA’s only concern is the legality of the minimum wage increase. When asked how the KRA thought the minimum wage would impact Louisville’s economy, Roof answered simply, “I don’t know.”

However, a Sept. 24, 2015 syndicated Associated Press article states that the KRA believed the minimum wage increase “would hurt business.” Also, the National Restaurant Association’s website published a piece on Jan. 6, 2015 which paraphrased Roof as stating that the KRA believed the minimum wage increase would make Louisville restaurants less competitive than neighboring cities, due to price increases restaurants would have to make because of the wage increase.

LEO contacted Roof again to clarify if she thought the wage increase would have an impact on the economy, since she initially told LEO she didn’t know what the impact of the minimum wage increase would be. Roof stated that the KRA was focused on these issues in January of 2015, but the KRA hasn’t looked at these issues in some time, and is unsure whether the minimum wage will have an impact on the economy at the present time. As to whether the KRA has changed its opinion on whether the minimum wage increase would impact the economy in Louisville, Roof refused to provide a definitive answer to LEO.

John Varanese, chef and owner of local restaurant Varanese, who publicly opposed the minimum wage increase, told LEO that raising the wage of tipped workers was “redundant,” which he stated is also the opinion of the KRA. Varanese states this is because employers must pay the difference if tipped employees do not make minimum wage during a given pay period. Varanese, a member of the KRA, made his opinions well known to the Council, sharing his own testimony in City Hall as a concerned restaurant owner last November. Longtime service industry veterans do not all share Varanese’s sentiment.

Service industry workers speak out

It is difficult for food servers like 35-year-old Adrian Bates to understand what is redundant about the tipped worker provision. “Any wage increase would have been a welcomed one. Making $2.13 an hour doesn’t even get close to paying the taxes that we as servers owe at the end of the year,” Bates told LEO.

Bates has been in the service industry since she was 15 years old and loves the work. But like many others in the service industry, living off of tips and a low hourly wage hasn’t been consistent for her income and raising children. She is finishing a master’s degree in another field to pursue a different career. Bates is employed at a chain restaurant in the Louisville area. However, she was made to sign an agreement that she wouldn’t mention the name of the company in any media outlets.

When Bates speaks of her situation, she is referring to what her and other tipped workers see as an unfair tax burden placed upon them. “Many restaurants, including the one where I work, automatically claim all of your tips for you, and do not claim any of your ‘tip outs’ to bartenders and bussers, so in essence I pay taxes on more than what I actually make,” Mason said. “Many single servers I work with owe between $3,000-$5,000 in taxes. I am married, own a home, have two children and I am a student and I still continue to owe taxes every year.”

If the ordinance kept the provision to raise tipped workers’ wages to 45 percent of the local minimum wage, this would have meant that tipped workers would earn $4.05 hourly by 2017. Bates said this would have been a good deal for tipped workers, and her focus is the unfair tax burden placed on tipped workers. “Because taxes consume the tiny $2.13 hourly wage, there just isn’t enough money there to tax, servers are left owing more taxes at the end of the year that $2.13 hourly didn’t cover, so any extra money hourly would help decrease the burden,” Bates said.

Ethan Wood, a 39 year-old service industry veteran, agreed with much of Bate’s perspective. Wood has worked in many restaurants in Louisville, and briefly in Florida, throughout his nearly 20 years in the restaurant industry as a server and bartender. He is currently employed at the new Highlands French eatery Le Chasse. He states that he is happily employed at Le Chasse, but he sees problems in the service industry as a whole for tipped workers. “Over the nearly 20 years I’ve been in the business, I’m still being paid $2.13 an hour,” Wood stated.

While Wood said his tipped income has risen during these years, with his hourly wage remaining the same for nearly two decades, this creates a new burden for him and other servers. “I’m having an increasingly hard time paying my taxes,” Wood told LEO. “Think about it. I make $100 during a shift, generally about a quarter of that is going towards taxes. So I put $25 away, and between the $10 to eat and get home, I’m really only making $9 to $10 an hour on slow nights,” Wood said.

Wood agreed with Adrian Bates that the incremental increase to $4.05 hourly would help out with the tax burden. Wood’s experience serving tables in Florida showed him that a raised wage for servers — even a conservative increase — helps out immensely with taxes. “When I worked in Florida, servers made $3.75 hourly. It would generally get me to a ‘zero’ tax bill, and that was a situation I could live with,” Wood said. In other words, the $3.75 hourly he was paid by his employer in Florida was still absorbed by taxes, but it didn’t require him to pay additional taxes at the end of the year.

An increase in Wood’s wage would likely get him to reconsider leaving the industry, Wood told LEO. Many food servers, who bring decades of experience, would perhaps stay in the industry if they weren’t faced with the unfair tax burden. “It would get me to stop considering finding a [new] career,” Wood said. Wood is currently finishing an undergraduate degree in business and will likely leave the industry when he finishes his education.

Like Wood, 25 year-old former bartender Paige Sutton believes the tipped worker provision would be a positive development for servers, bartenders and bussers. Sutton spent nearly a decade in the service industry, but she also recently finished a master’s degree in another field and will be leaving the industry for more stability. Sutton also believes a raise in tipped workers’ wages would have impacted her and co-workers positively. “I think if our wage was raised, servers would have more of a sense of stability and security as far as getting even a $20 paycheck,” Sutton told LEO, in reference to the voided checks servers get with their low hourly wage. “You’re still getting something, which could go towards groceries, or in my case, my expensive college loans.”

Sutton described a feeling of uncertainty, as she was in graduate school and working solely for tips. “It would be reassuring to have known that I would have gotten a little bit of a paycheck every week instead of just depending on tips. I think that as a server working only for tips, whether you like it or not, every time you’re greeting a customer, it’s like interviewing for a job. And you’re going to be tipped if the interview goes well,” Sutton told LEO.

Don’t mourn. Organize!

For the nearly 13,000 servers and bartenders in Jefferson County, there is no union presence for tipped workers. For local activists like Bonifacio Aleman, organizing this workforce is the way forward, and could potentially avoid situations like Sutton’s. Aleman was an active participant in one of the most notorious restaurant labor disputes in recent Louisville history. “When I was with Jobs With Justice, we took on the Lynn’s Paradise Café campaign,” Aleman said. He is referring to the notorious situation at Lynn’s, in which they abruptly closed the restaurant amidst allegations of a draconian tip policy, sexual harassment allegations and labor law violations such as paying workers below the minimum wage. The situation culminated when workers threatened to strike. Mr. Aleman says it was a “one-in-million situation, ending with the owner closing the restaurant and firing everyone.”

While the sense of solidarity inspired Aleman, it was also part of his tenure at KyJWJ to work towards tipped workers being able to have a platform. “One of the things that I really worked hard to institute when I was with [Kentucky] Jobs With Justice was a structure for restaurant industry workers to organize,” Aleman told LEO. “Unfortunately, traditional labor unions have overlooked tipped workers, because traditionally the industry has been very transient. So I think that poses one of the biggest problems for unions, who are used to the traditional model of people coming to a factory or similar workplace, and they stay for 20-plus years,” Aleman continued. “So I think unions will have to figure out how to navigate that road.” Aleman says that, to their credit, large unions in Louisville like the UFCW and the SEIU were on board with organizing restaurant workers, but since unions do not have a presence in this industry, meeting tipped workers where they are and outreach has been difficult. Aleman says many restaurant workers fear retaliation, as well, since there aren’t protections in their industry without union representation.

‘The hardest working people in our community’

Former Councilwoman Scott spoke passionately about why she chose to champion the fight to pass the minimum wage ordinance in the first place. “The hardest working people in our community also make some of the lowest wages, so for me it was our responsibility as a legislative body to do what we could to raise the wages of people who serve us daily,” Scott stated. She includes tipped workers in this group, who were exempt from her fight to raise the wage for all Louisville workers.

For now, nothing changes for tipped workers in Louisville. However, Tony Hyatt, spokesman for Metro Council Democrats said this will be monitored, and if need be, the Council will take action to create reforms for this group of workers. Perhaps it will take the kind of grassroots, social movement initially sparked by the collaboration of progressive Metro Council members like Scott and community organizers like Aleman — and certainly the collective voice of Louisville tipped workers — for the city to notice and take meaningful action.

Louisville’s political class jumps at the opportunity to praise the city as both a “compassionate” town, and one with a vibrant food culture. While the latter is certainly true, if Louisville wants to have both top-of-the-line restaurants and fancy itself compassionate, it will have to deal with the issue of tipped workers being excluded from even conservative bumps in their wages, which hasen’t been raised in two decades while the cost of living increases around them. “What other industry gets to hire someone to cover their floor for $2.13 an hour?” Wood stated, in reference to workers doing “side work” (polishing dishes, cleaning, et cetera) prior to getting tables or bar customers. “It needs to change, and I don’t think it will without some organizing among servers and bartenders themselves.” •