Testimony: Hearing on Ending the Subminimum Wage in New York State

Testimony by
Irene Lew, Policy Analyst
Community Service Society of New York
Before the New York State Department of Labor Commissioner Roberta Reardon
June 27th Hearing on Ending the Subminimum Wage in New York State

Thank you for the opportunity to testify today on the issue of ending the separate lower minimum wage for tipped workers in New York. My name is Irene Lew and I am a policy analyst at the Community Service Society of New York (CSS), a 170 year-old organization that advocates for the upward mobility of low-income New Yorkers.

The 2016 legislation to raise the hourly minimum wage to $15 in New York was a major step forward to improving the economic mobility of low-wage workers and their families in the state. But New York’s current minimum wage policy has left out one critical part of the workforce: tipped workers like restaurant servers, car wash attendants and nail technicians. In New York City, tipped hospitality workers currently face a minimum wage that is $4 to $5.50 less than non-tipped workers and must rely on tips from customers to bring their incomes up to at least the regular minimum wage.

My testimony will be focused on the roughly 164,000 tipped workers in New York City that receive a subminimum wage.

Tipped workers more likely than non-tipped employees to experience poverty, multiple hardships and financial insecurity

Tipped workers living in New York City are more likely than non-tipped employees to live in poverty – according to Census data[1], more than a quarter (26 percent) of tipped workers living in New York City have income below poverty, compared to 14 percent of non-tipped workers and 15 percent of working residents overall. The median annual earnings of tipped workers living in New York City was just $21,200 in 2016, nearly half the earnings of non-tipped workers ($40,000). In contrast, in the seven states where tipped workers are entitled to the full minimum wage before tips, poverty rates, especially for tipped workers of color, are lower than in states with a subminimum wage for tipped workers[2].

Tipped workers are also more likely than non-tipped workers to rely on public assistance such as food stamps (SNAP) or Medicaid: nearly 1 out of every 5 tipped workers living in NYC (19 percent) use SNAP benefits, compared to 14 percent of non-tipped workers. Thirty-two percent of tipped workers receive Medicaid, which is nearly double the share of non-tipped workers with this benefit. 

Since tips—not a regular paycheck—make up the majority of tipped workers’ pay—weekly income can fluctuate considerably, making it harder for these workers to predict their weekly earnings and plan for their families’ financial stability. Nearly a third (32 percent) of tipped workers we surveyed as part of CSS’s annual Unheard Third survey of New York City residents said that they were worried all or most of the time about their household finances, compared to less than a quarter (23 percent) of non-tipped workers. Few tipped workers have an adequate financial cushion if they were to fall on tough times: 39 percent of tipped workers in New York City reported having zero or less than $500 in emergency savings, compared to 26 percent of non-tipped workers with such low savings levels.

With unpredictable income and little savings, tipped workers often make difficult trade-offs when it comes to paying for necessary expenses like housing, food or healthcare. Forty-two percent of tipped workers living in New York City experienced three or more hardships in the past year such as going hungry, having their utilities shut off due to unpaid bills or delaying necessary medical care. The prevalence of multiple hardships is much lower among non-tipped employees – 27 percent reported experiencing three or more hardships in the past year. Housing hardships are more common among tipped workers: 32 percent of tipped workers said that they experienced at least one housing-related hardship in the past year such as falling behind on their rent or mortgage or being threatened with foreclosure or eviction, compared to 21 percent of non-tipped workers. Furthermore, 18 percent of tipped workers reported that they went hungry in the past year because there wasn’t enough money to buy food, double the share of non-tipped employees who said that they experienced this hardship. Our survey findings show that a two-tiered wage system where one group of workers is guaranteed a regular minimum wage and paycheck, and another is paid a subminimum wage and must rely on tips to make up the full minimum wage, has driven more workers into poverty, hardships and financial insecurity.

Complexity of two-tiered system lead to wage theft

For tipped industries in New York State, there are eight possible subminimum wages that employers are required to pay depending on industry, business size, and location. When tips don’t add up to at least the minimum wage, employers are legally required to make up the difference between a tipped worker’s earnings and the full minimum wage. However, these complicated tip credit and wage rules, coupled with a largely immigrant tipped workforce[3] that may be fearful of employer retaliation, makes this system difficult to enforce and leaves tipped workers vulnerable to wage theft. In fact, restaurant wage theft lawsuits accounted for 23 percent of the total Fair Labor Standards Act cases in New York City compared to only 8 percent in Los Angeles, where tipped workers are paid the state’s regular minimum wage[4].

 

Little adverse impact on restaurant industry or tipping practices

Furthermore, the restaurant industry can still thrive while paying its workforce the same base wage as employees who don’t work for tips. A recent study[5] found that the number of full service restaurants in the seven states that don’t allow a lower minimum wage for tipped workers (Alaska, Montana, Nevada, Minnesota, California, Oregon, and Washington) have steadily increased throughout the last five years. In these seven states, job growth in the full-service restaurant industry has outpaced private sector growth over the past five years by an average of five percent[6]. Furthermore, having the same base wage for tipped and non-tipped workers does not mean the end of customer tipping or lower tips. In a majority of the seven states that don’t have a subminimum wage for tipped workers, average tips are higher than in New York, which ranks as the seventh worst state when it comes to tipping[7].

Widespread support for One Fair Wage

We found widespread public support in New York City for raising the tipped minimum wage so that is in line with the general minimum wage. Seventy-two percent of respondents in our 2017 Unheard Third survey favored one minimum wage for all workers in New York. Broad support for one minimum wage was found across the board, whether or not workers relied on tips for their earnings. Seventy percent of tipped workers and a similar share of non-tipped workers said that they favored the one-wage proposal.

The time has come to end a complex wage system that is shortchanging our state’s most vulnerable workers and for New York to join the seven other states where tipped workers are entitled to the full minimum wage before tips.

 

[1] US Census Bureau, 2016 American Community Survey data.

[2] Restaurant Opportunities Centers United. 2018. “Better Wages, Better Tips: Restaurants Flourish with One Fair Wage, http://rocunited.org/wp-content/uploads/2018/02/OneFairWage_W.pdf

[3] According to CSS tabulations of 2016 American Community Survey data, 58 percent of tipped workers living in New York City are foreign-born, compared to 46 percent of non-tipped workers.

[4] Allegretto, Sylvia A. 2018. “Should New York State Eliminate its Subminimum Wage?” http://irle.berkeley.edu/files/2018/04/Should-New-York-State-Eliminate-its-Subminimum-Wage.pdf

[5] Restaurant Opportunities Centers United. 2018. “Better Wages, Better Tips: Restaurants Flourish with One Fair Wage, http://rocunited.org/wp-content/uploads/2018/02/OneFairWage_W.pdf

[6] Ibid, see note 2.

[7] Johnson, David. 2017. “Find out Which States Give the Worst Tips.” http://time.com/4886489/states-tips-square/

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