Potential Impacts of a Full Minimum Wage for Tipped Workers in Massachusetts
This November, Massachusetts voters will consider a ballot measure that proposes to eliminate the state’s subminimum wage for workers who receive at least $20 of their monthly earnings in tips.2 These tipped workers are often waiters, bartenders, hosts, and bussers employed in bars and restaurants. Currently, Massachusetts law allows employers to pay tipped workers a base rate (or “service rate”) of $6.75 per hour, and tips from customers are supposed to cover any gap between $6.75 and the state’s full minimum wage of $15.00. If tips do not cover the difference, employers are obligated to pay the shortfall, bringing the worker up to $15.00 for that shift. The ballot proposal will gradually eliminate the subminimum wage so that by 2029, Massachusetts employers will be required to pay tipped workers the full Massachusetts minimum wage. If Massachusetts eliminates its subminimum wage, it will join eight other states and two major cities that do not have a lower tier minimum wage for tipped workers or are in the process of eliminating their lower tier.3
Proponents of this proposal argue that eliminating the subminimum wage for tipped workers would improve the job quality of tipped occupations.4 Even while Massachusetts law requires employers to make up any shortfall between a tipped worker’s base wage plus tips and the full minimum wage, tipped workers often carry the burden of asking their employers to do so. This feature makes them particularly vulnerable to being under-paid, a form of wage theft. Proposal proponents argue that requiring employers to pay their tipped workers a full minimum wage would help reduce wage violations and improve workers’ pay.
Opponents of this proposal argue that the stronger labor standard could backfire for tipped workers in two important ways.5 First, customers may respond to the policy change by reducing their tips. This could result in tipped workers earning less than before, even while being paid the full minimum wage. Second, opponents worry that the stronger labor standard would substantially increase business costs for restaurants, in particular, and as a result these businesses would adjust by significantly raising their prices and/or cutting jobs.
In this brief, we describe the Massachusetts workers who will be directly affected by eliminating the subminimum wage and consider the existing evidence on how this policy change could impact job quality, employment, business costs, and prices.
Key findings:
Tipped workers are:
* Approximately 3.3% of employed workers in Massachusetts, or about 123,400 workers.
* Disproportionately women, making up 66% of tipped workers compared to 49% for the overall Massachusetts workforce.
* Typically younger than workers in the overall Massachusetts workforce: 15% are teenagers compared to 4% of the overall workforce. At the same time, the vast majority of tipped workers are not teenagers (85%).
* Often parents; one in three (33%) tipped workers are raising children in their homes.
* Disproportionately Black, Indigenous, and people of color, making up 43% of tipped workers. This compares to 29% among Massachusetts workers overall.
* Divided roughly in half between part-time workers (52%) and full-time workers (48%). ú Nearly half (48%) of all tipped workers—59,400 workers—work in restaurants and hotels.
The Restaurant and Hotel industry is among the worst offenders for workplace complaints and violations, compared to all other industries. Despite accounting for only 5.6% of employment in Massachusetts in 2023, the Restaurant and Hotel industry had:
* The highest overall number of complaints, 941, accounting for 13.9% of all complaints made by workers to the Massachusetts Attorney General’s Office.
* The highest number of complaints regarding tips (238), minimum wage (125), and non-payment of wages (500), accounting for 72% of tip complaints, 29% of minimum wage complaints, and 13% of non-payment of wage complaints.
* The highest number of enforcements, 287, accounting for 36.5% of all enforcements issued the Attorney General’s Office.
* The fourth highest dollar amount in penalties, amounting to $2.6 million. This penalty level relative to the industry’s payroll is double the average rate across all Massachusetts’ businesses.
The average tipped worker earns low wages.
* Including the base rate and tips, the average tipped worker earns an hourly wage that is about 35% below the statewide average ($20.30 vs. $31.50, respectively).
* At this average rate, a tipped worker employed full-time year-round will nearly, but not quite, meet the basic budget needs of a single adult with no dependents in a low living-cost area such as Hampden County.
* Tips are a critical source of income: about 37% of the average tipped worker’s earnings are from tips ($7.50 in tips compared to the average base rate of $12.80).
Current wage data indicate that tipped workers in states with no subminimum wage (i.e., equal treatment states) earn about 10% to 20% more in wages and tips than tipped workers in states with subminimum wages.
Tipped workers appear to earn more in equal treatment states than tipped workers in subminimum wage states, even after accounting for the fact that workers overall in equal treatment states earn 5% to 10% more than workers in states with subminimum wages.
Eliminating the Massachusetts subminimum wage would likely result in a modest cost increase for the average Massachusetts restaurant, equal to about 2% of its sale revenue.
* An average Massachusetts restaurant could cover a cost increase of this size by raising its prices by around 2%, i.e., a $50 restaurant meal would increase by $1, to $51. This f inding suggests that eliminating the Massachusetts subminimum wage is unlikely to produce significant price increases or negative employment effects.
Read the full report here.