Minimum wage campaigns’ biggest losers? Tipped workers

January 13, 2014, 10:00 AM UTC

FORTUNE — As of Dec. 31, New York State’s minimum wage inched up to $8 from $7.25, thanks to a budget deal brokered last spring.

Good news all around, right? Well, not if you’re a waitress.

A raise in the minimum base pay of tipped workers had been on the table when Governor Andrew Cuomo initially introduced his budget. But tipped workers were left out of the ultimate deal — the victims of political wrangling, according to Michael Kink, executive director of The Strong Economic for All Coalition. The governor’s office didn’t return a request for an explanation why a hike for these workers wasn’t included in the deal. When the minimum wage of all other workers ticked up at the end of last year, tipped workers’ base rate stayed stagnant: $5 for food service workers, $5.65 for service employees, and $4.90 for resort hotel workers.

When Connecticut Governor Dannel Malloy signed a law that hiked the state’s minimum wage from $8.25 to $9 this spring, the same thing happened: An increase for tipped workers was absent from the deal. The minimum base pay of $5.69 for hotel and restaurant workers didn’t budge.

As all minimum wage workers try to eke out a living, many tipped workers are coping with an even shorter end of the stick.

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Congress deserves a great deal of the blame. Their inaction on the overall minimum wage has been criticized — it’s been stuck at $7.25 since 2009 — but their record on addressing the minimum wage for tipped workers is even worse. The federal minimum wage for a tipped employee is $2.13 per hour — a rate that’s gone unchanged for 23 years.

The minimum base rate for tipped workers was set in 1966 by Congress, which recognized that the erratic nature of tips was leaving workers with wide swings in take-home pay. It fixed the base pay for tipped workers to 50% of the federal minimum wage to ensure that tipped workers earned a more stable income. For the following 30 years, the minimum rate for tipped workers was tied to the overall minimum wage. That came to an end in 1996, when the restaurant industry lobby convinced lawmakers to unlink the two rates. When President Bill Clinton signed a law that increased the minimum wage from $4.25 to $4.75, he froze the tipped minimum wage. It stayed at $2.13 — where it had been since 1991 and where it remains today, now amounting to just 29% of what other minimum wage earners make.

Similar to what has happened with the overall minimum wage, the absence of federal action on the issue of tipped workers’ pay has prompted some states to address the issue themselves.

According to the Department of Labor, seven states — Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington — have a minimum wage that’s the same for tipped and non-tipped workers, which means restaurant and hotel workers make minimum wage, plus tips. But all other states pay tipped employees a base minimum wage that’s lower than that of regular workers, including 18 that pay tipped workers the federal standard of $2.13.

In setting the so-called tipped minimum wage lower than the rate of other workers, states presume that the gratuities tipped workers earn will amount to at least the minimum wage rate. If it doesn’t, employers are supposed to pay the difference. But that doesn’t always happen. Between 2010 and 2012, the Department of Labor conducted nearly 9,000 wage and hour investigations throughout the country in the full service sector of the restaurant industry and found a violation rate of 83.8%.

While it’s likely that not all violations have to do with underpaying tipped employees, the statistic sheds light on how hard it is to ensure that these workers make minimum wage. David Cooper, an economic analyst at the Economic Policy Institute explains it this way: “Imagine you’re a tipped worker at Denny’s. The expectation is that you record the hours you worked and the tips you made and calculate the overall wage you received. If it’s less than the minimum wage, you’re expected to go to your employer — the guy who decides what hours you work or if you work at all — and tell him, ‘You didn’t pay me enough.’”

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In states where the minimum wage is the same for tipped and non-tipped workers, the poverty rate is 12.1%, according to a 2011 study by the Economic Policy Institute, compared with 16.1% in states with the lowest tipped minimum wage.

Some policymakers are trying to address this problem.

As part of the budget deal, the New York State Department of Labor is currently reviewing whether its base minimum wage for tipped workers should be raised. On Thursday, New York State Assembly Speaker Sheldon Silver, in introducing legislation to speed up the minimum wage increase to $9, proposed increasing the cash wage for food service workers to $5.50 immediately and to $6.20 on Dec. 31, 2014. He also suggested indexing the cash wage to inflation annually going forward.

And the 2012 Harkin-Miller bill to raise the federal minimum wage that’s gained support from the White House proposes raising the base minimum wage for tipped workers from its current rate of $2.13 per hour to $6.85 over five years and fixing it at 70% of the full minimum wage thereafter.

In addition to tipped workers themselves, consumers stand to benefit from such a wage increase. After all, patrons are the ones who have been supplementing the tipped workers’ exceptionally low base pay for the last 23 years. “The tipped norm used to be 10%, then it was 15%, now it’s 20,” Cooper says. “Employers aren’t having to pay workers any more, and consumers have been compensating for it,” he says. “Without that, these workers wouldn’t get by.”