Waiters and table bussers are still coming out ahead, but diners are reducing their gratuities.
According to data released Tuesday by private-sector payroll processor ADP, base wages—the amount that employees are paid directly by their employers, before tips—rose 66% between January 2020 and September of this year. Gratuities increased by just 23%. Nearly 100,000 tip earners at full-service restaurants around the country had their paychecks examined for this study.
As of September, the typical hourly wage and tip income for restaurant employees was $23.88, which is a 28% increase since January 2020. The data indicates that these workers’ overall income growth topped inflation by 6 percentage points, while their tips only outpaced it by one, given that consumer prices increased by 22% over the same time period.
According to a different analysis published Tuesday by Toast, a payment processor, tips at full-service restaurants have remained relatively unchanged since June. As of September, their average hourly wage was $21.48, which was only 58 cents higher than it was at the same time last year but around 7 cents lower when inflation was taken into account.
The salary increases for restaurant employees are intimately related to the pandemic, as are many other recent economic trends: According to ADP chief economist Nela Richardson, operators raised wages to entice workers back when they reopened and discovered that they typically couldn’t cut rates once they had done so.
According to her, many industry employees were able to aggressively observe increases in basic pay. Over time, these workers had far more negotiating leverage.
According to ADP, tips now account for more than 57% of the median-earning restaurant worker’s compensation, which is still a significant amount but has decreased from nearly 65% in January 2020. Debates about whether to lower tip taxes, a proposal that garnered bipartisan support throughout the campaign trail even as larger minimum wage issues intensify, may be impacted by this declining share.
The results, meantime, address the prevalent complaints over “tipflation,” which is the practice of asking customers to tip more frequently through automated reminders on payment processor displays when they may or may not feel that it is appropriate. Although there was a slight increase in tipping during the epidemic recovery, many people have persistently refused offers to add gratuities.
Customers have actually stated that they are reducing the frequency with which they tip employees such as waiters, hairdressers, and drivers, at least since this summer. According to a recent Wells Fargo survey, only 50% of Americans want to offer gifts or Christmas advice to service workers this year.
Even as restaurants reduce menu price hikes and rely more on discounts to draw customers to drive-thrus and tables, tipping is slowing down. As 2024 draws to a close, total inflation has settled just at 2%, significantly below its peak of 9% in June 2022. However, just as customer tipping practices have changed in recent years, so too have restaurant owners’ compensation packages and the laws that regulate them.
According to Saru Jayaraman, president of One Fair Wage, an advocacy group that pushes for increased base pay, workers have been winning in the marketplace. We have been able to win in policy because we have won in the marketplace.
Jayaraman cited Michigan, where the state Supreme Court last summer cleared the way for a minimum wage hike, from $10.33 to $12.48 to take effect in February 2025.According to the Economic Policy Institute, throughout the past year or so, at least 26 states and Washington, D.C., have increased the minimum wage, while 20 have increased their tipped wage.
The tipped wage, also known as a subminimum wage, allows tip earners to be paid a lower hourly rate but requires employers to cover any shortfalls whenever gratuities don t add up to either the $7.25 federal pay floor or a higher statewide one. The state subminimum is progressively raised by Michigan’s new statute until it is phased out in 2029.
According to Jayaraman, Michigan was this year’s biggest victory. We’re on a roll, I would think. Advocates have notched similar victories recently in New York City, Los Angeles and Chicago, and Jayaraman said her group s next big target is Illinois, where a bill to eliminate the state s subminimum wage has been working its way through the legislature.
To be sure, most full-service restaurant workers still rely heavily on tips for their income, and industry operators largely want to keep it that way. Many argue that their labor costs have already surged unsustainably a reality the ADP findings appear to back up especially squeezing small restaurants that run on thin margins. Still, Arizona voters last monthsoundly defeatedan industry-backed ballot measure that would have slashed the minimum wage as long as tips hit a designated new threshold.
ADP found subminimum pay rules have indeed kept workers afloat at times when gratuities collapsed, just as the system is designed. In the first half of 2020, when tips dried up during pandemic lockdown, base wages rose, thanks to laws that require employers to make up for the loss of tipped wages, the researchers wrote. But as tips recovered, base wages fell quickly to pre-recession levels. A year later, base wages spiked again, just not enough to overtake tips.
It remains to be seen how the decline in gratuities share of industry workers income might affect any move to eliminate taxes on tips, as President-elect Donald Trump has promised. Richardson said the impact of the proposal which service workers and labor groupsdidn t rank too highlyduring the campaign season would depend on the details.
What we can say is that the base has now become a more impactful part of overall compensation for restaurant workers, she said. That s going to be really meaningful for a whole host of reasons.
CORRECTION(Dec. 10, 2024, 2:15 p.m. ET): A previous version of this article misstated the time period for restaurant workers 66% wage growth. The increase occurred from January 2020 to this September, not from January 2019.
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